Primer on Advisory Boards

This post by Steven Bayle is a primer for technology startups on establishing and working with advisory boards. As he points out, properly structured and managed, an advisory board can establish credibility in the marketplace and provide valuable assistance and advice on topics such as the company’s strategy, product offerings and technological direction. The post covers everything from determining the type of board to set up (customer, strategic, technical) to giving board members homework in anticipation of their participation in meetings designed to be interactive and interesting.

While the post touches on some of the legal issues involved in creating and serving on an advisory board, I would add the following taken in part from an article appearing in Tech Biz Florida:

Advisory board members:

§ Are not the Board of Directors elected by the shareholders.
§ Do not have same statutory protections afforded to elected Boards of Directors
§ Do not vote as part of the Board of Directors.
§ Do do not have policy-making powers.
§ Are not officers or employees of the company.
§ Do not have management authority in the company.

If your company decides to establish an advisory board, it should do so in a way that minimizes any risk of liability for the advisory director. Steps that can be taken include:

§ A written description of the role and responsibility of advisory board members, which make it clear that they have no policy-making powers, have no voting authority, and have no management authority in the company, but their role is solely advisory, subject to the review and approval of the company's Board of Directors and/or senior management.

§ A written record of the proceedings of advisory board meetings, which will reflect that the advisory board was acting consistent with the written description of its role in the company.

§ Some periodic monitoring of the role of advisory directors to verify that they are acting consistent with the written description of their role and responsibilities (these can be whatever is important to your strategic plan so long as they are not policy-making, operational, or managerial responsibilities).

§ Review of the company's D&O Insurance policy to make certain that the advisory directors are sufficiently protected if a lawsuit is filed against them.

§ Review of the company's articles of incorporation and bylaws and local law to make certain that the company will be obligated to indemnify advisory directors to the full extent allowed by law, and consideration of separate indemnity agreements between the company and its advisory directors.