If your company is looking to onboard board advisors as part of your corporate governance framework, a board advisor agreement can provide important protections. Such an agreement helps clarify the board advisor’s role and their rights and obligations. This article will discuss why you may need a board advisor agreement and explain the clauses commonly included in a board advisor agreement.
What is a Board Advisor?
It is becoming increasingly common for companies to include board advisors as part of their corporate governance framework. A board advisor is a person with specialist or industry knowledge. They are engaged by a company’s board to provide advice on management and strategic issues. However, they have no power to vote on company decisions.
A board advisor’s role is not governed by:
- corporations law;
- general law; or
- the corporate governance documents of a company (i.e. the company constitution and the shareholder’s agreement).
As a result, the rights and obligations of a board advisor are typically documented separately. Doing so avoids any misunderstanding regarding the board advisor’s role and protects both the company and the advisor’s interests. This document takes the form of a board advisor agreement between the company and the board advisor. Alternatively, the company may choose to deal with the board advisor’s appointment and role by resolution.
Common Clauses In Board Advisor Agreements
Scope of the Role
A board advisor agreement (the agreement) will often contain clauses confirming the scope and duties of the board advisor’s role. It will also confirm that the board advisor is a consultant whose key purpose is to provide advice to the board and management on the company’s strategic and operational matters.
In addition, the agreement will state that the board advisor does not have power or influence over the company. This is to make it clear that the board advisor is not a director or shadow director. Doing so prevents the board advisor from taking on any director’s legal responsibility.
The agreement will also confirm that the board advisor cannot enter into contracts on behalf of the company or transact business in the name of the company. This protects the board advisor from being subject to any duties applicable to the officers or directors of the company.
The agreement will often cover what meetings the board advisor can attend, and the materials and information the board advisor will be provided with for board meetings.
The agreement usually will also state the basis on which the company may withhold information and exclude the board advisor from meetings. This may be appropriate where the board advisor has a conflict or a material personal interest in a matter the board is considering.
Usually, the agreement will cover the term for which the board advisor will hold the role as a board advisor. A term is the length of time the board advisor will spend in his or her role. Typically, both parties will be able to end the appointment with reasonable notice for any reason.
The agreement will also state what is to happen if the appointment comes to an end or is terminated.
The agreement will also cover whether the board advisor will be entitled to receive any fees and remuneration, or reimbursement of expenses. This could include expenses incurred for attendance at board meetings or any other work or preparation involved in performing their role as a board advisor.
A board advisor is not subject to the same legal duties as a director. For example, this includes duties to:
- act in the best interests of the company;
- keep information confidential; and
- not act in conflict.
Therefore, if you want to protect your company in these areas, you will need to ensure such obligations are set out in the board advisor agreement. Common protections include clauses:
- requiring the board advisor to inform the company if they intend to provide any services to a competitor;
- confirming that the board advisor will not be in breach of any other duties or obligations it has with other parties. It may also be necessary to include a non-compete clause if it is appropriate in light of the advisor and their other activities;
- imposing a duty of confidentiality in respect of any information provided to the board advisor; and
- confirming that all intellectual property created by the board advisor in the course of holding its position as board advisor vests in the company and must be assigned to the company.
Board Advisor Protections
Board advisor agreements typically stipulate that the board advisor has no legal responsibility for conduct made in good faith. Acting in good faith means the board advisor acts honestly and without an intention to deceive. Essentially, the company usually agrees to indemnify the board advisor against any legal responsibility for conduct made in good faith in their role as a board advisor.
A board advisor is an alternative board role that your company may consider appropriate for effective corporate governance. A board advisor agreement is an important document protecting your company and the advisor. If you have questions about reviewing or drafting a board advisor agreement, get in touch with LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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