This article and the article accompanying the board`s advisors both deal with a corporate governance agreement that complements the powers of the formal board of directors by persons appointed in an observation or advisory function. These individuals do not have the fiduciary functions of elected board members. Board observers are generally a venture capital firm phenomenon and represent the interests of these investors. On the other hand, the use of boards of directors is increasingly becoming a feature of board meetings across the spectrum, including family-owned enterprises, venture capital or private equity firms, and state-owned enterprises. Since boards of directors have access to board meetings and sensitive company documents, all confidential and proprietary materials and information made available to the consultant must remain the property of the company and the use and disclosure of such documents and information must be limited. The agreement should include a detailed definition of what constitutes “confidential information” and require the consultant to keep these documents confidential, subject to customary exceptions (e.g. B when disclosure is mandatory). Because of his participation in board meetings and access to material, an advisor may be named as a defendant in shareholder actions or other actions in which the company is involved. This is especially true for start-ups when a consultant often has a larger wealth than the company itself (and can therefore be considered a “deep pocket” by potential parties to the process).
The agreement should stipulate that the role of the advisor is to provide advisory services, either to the board of directors or to management as an independent contractor. It should clarify that the advisor does not have the power to act, represent or hire him for the company and that he cannot take any action which means that he has this type of authority. The agreement should also specify the tasks the company expects from the consultant, including: (1) the number of meetings, conference calls or other events in which the advisor is to participate; (2) any preparation that the consultant should undertake in advance of these meetings or events, including the revision of documents such as business plans or budgets; and (3) all other tasks on which the company and the advisor have agreed, such as.B identifying business opportunities or assisting the board of directors in communicating management. Unlike members of a company`s board of directors, shareholders do not elect advisors to the board of directors. Instead, advisors are appointed by the management or management of the company and generally serve the directors. Before a company connects with a management advisor or creates an advisory board, the company and its advisor should have a clear idea of the benefits the company expects from that relationship and how the relationship will work in practice. A company and its advisors should also be prepared to address the concerns of the board`s common advisors and to protect the important interests of businesses throughout the relationship. More broadly, the company should again consider potential conflicts of interest from its budding advisors or advisors.
In general, a company may not want to hire a consultant who also practices or advises a member of the board of directors of a competitor or company in a related sector. These circumstances create conditions for possible cross-over discussions on proprietary information or trade secrets that could give rise to intellectual property rights disputes.