Vice Chairman and Co-Leader, Board & CEO Services and Global Leader, Government Affairs
Advisory Boards: The Hot New Governance Trend
The startup clean energy company knew that the passage of the infrastructure bill meant a number of new projects would be up for bidding. But its executive team and board of directors didn’t have the relationships with legislators and regulators in Washington to effectively compete. Hiring an executive wouldn’t do much to move the needle. What the company needed was six or seven politically connected industry experts who could provide advice on navigating the regulatory environment and connections to the right decision-makers.
Enter the advisory board. As the business landscape becomes more complex and unpredictable, organizations are turning to advisory boards to fill knowledge gaps, provide market intelligence, or advance strategic objectives. Since 2019, there has been a 52% increase globally in organizations utilizing advisory boards as part of their governance structure, according to the industry association Advisory Board Centre’s annual report. “More and more clients are asking us to build advisory boards for specific issues,” says Nels Olson, co-leader of the Board and CEO Services practice at Korn Ferry.
Advisory boards function much like an actual board, with a few key differences. Advisory board members are appointed instead of elected, for instance. They don’t have fiduciary responsibilities or voting rights either. Both the time commitment and compensation are less for advisory board members than for corporate board directors.
In the past, organizations primarily used advisory boards to gain insight and relationships around potential new markets or services. Now, however, Olson says organizations are using them to address a host of issues, from sustainability and cybersecurity to diversity and talent management. In fact, organizations engage advisory boards the most when going through periods of change, and with the COVID-19 pandemic, social and political unrest, supply chain disruption, and increase in stakeholder activism there has been a lot of change happening over the last two years. Since 2019, for instance, 95% of the organizations using an advisory board did so for the first time, according to Advisory Board Centre data.
The advantages of an advisory board to both the organization and appointee are numerous. For one, organizations can’t keep expanding the size of their corporate board to accommodate additional directors for all the areas of expertise now needed. Corporate boards already average between nine and 12 directors who even with term limits each still serve for roughly a decade. By contrast, the vast majority of advisory boards are project-based, lasting as little as three months to as long as 18 months depending on the engagement.
On the appointee side, advisory boards provide executives with an outlet to gain visibility and make connections without the responsibility and commitment required of corporate board directors, says Julie Norris, a senior client partner in the Board and CEO Services practice at Korn Ferry. Nearly half of all advisory board members responding the to Advisory Board report cited “enhancing my profile” and “developing a global peer network” as the top reasons for accepting an appointment. “Being on an advisory board signals that this person is a respected leader and contributor in their particular space,” says Norris. And the opportunity to collaborate, build new relationships, and deepen expertise being on an advisory board provides, Norris says an appointment could provide broader exposure that eventually helps pave the way for a corporate board director nomination.