It has become common practice for corporations to invite former board members, investors or people with certain expertise to serve as corporate board observers or corporate board advisors. These arrangements can be mutually advantageous; as it gives corporations opportunities to form strategic partnerships while potential investors get insight into corporations. *It is important to understand the differences between the board observer and board advisor roles in order to determine which would be best for your company. *
Often board observers are appointed as a mandatory part of financing from financial venture capital or private equity firms. A board observer does not have the fiduciary duties like typical board members. Observers also do not have the right to vote and cannot be counted in order to establish that an appropriate amount of people have attended the meeting in order for a vote to occur. Although observers do not have veto power, they could influence investors. Since observers are often perceived to be protecting investors’ interests more than company interests, board members often treat them warily.
A board advisor is generally appointed by the board and not outside investors. They also do not have any fiduciary duties to the company or voting rights. A board advisor often possesses valuable expertise or experience and can act as a consultant to the board.
Both corporate observers and board advisors need to have the relationship solidified by a contract. These contracts protect corporations and the observer/advisors alike. A properly drafted contract will ensure that the observer or advisor will not have any liability and it will also protect the corporation’s interests in confidentiality or intellectual property rights.
Clement Law Firm, Asheville, NC -- 828-281-8160