Advisory Councils – why should an entrepreneur appoint one?

What is an advisory council?

An advisory council is a body of two or more persons appointed by a company in order to fulfil a particular role or function. That role may be to support the board, the employees or to act as a body which represents the view of shareholders, employees or wider stakeholders. It can be temporary or permanent and look at a single issue or a range of issues.

An advisory council is not a substitute for other management and executive roles in a company. It does not generally have any authority in relation to the company and, as such, cannot instruct the board or any employees.

Advisory councils can be used for a wide variety of purposes and are not necessarily restricted in terms of structure or function. This flexibility is therefore an advantage but the creation and management of an advisory council will often need detailed thought. Members of an advisory council may, or may not, be remunerated.

Why appoint an advisory council?

There are an infinite number of reasons why an entrepreneur might appoint an advisory council and there is no one size fits all in relation to this. However, there are a number of fairly common reasons for doing so, which are set out below.

• In early stage and growth companies, an advisory council is often a useful support to the entrepreneur who is focused on running the company. It may provide a body of experience and knowledge, as well as independent strategic advice to the board of directors.
  
  
• An entrepreneur may not want to be constrained by the formal appointment of other directors to the board (and may not be able or want to pay them) but will nonetheless want, or need, a body of people to turn to for advice and to discuss strategic objectives in confidence. This gives an entrepreneur the benefit of collective discussion as well as a wider pool of experience to draw from.
  
  
• It may deal with a specific issue affecting the company, such as international expansion, or particular projects, where the entrepreneur does not have time to focus on them or needs someone else to do the preparatory work.
  
  
• It may have a purely business development role and its function would be to go out and sell the relevant company and to create strategic opportunities, or act as ambassadors.
  
  
• Alternatively it may simply demonstrate credibility for the company by having an advisory council populated with well-known or high-profile names.
  
  
• An advisory council may also be used to provide a forum for key customers or potential customers of a company to comment on services, products or brand perception. Here it is more a point of focus to receive and distil comments from these stakeholders than a body which gives advice.
  
  
• The advisory council members may act as an informal dispute resolution mechanism to provide an independent view to the company on particular issues.
  
  
• In addition to providing a body of experienced people representing the company, an advisory council will often help show gravitas, good governance and an aspiration to grow into a company of size and complexity.
  
  
• An advisory council could have a role as a mentor to the company, or key staff within it. It does not therefore need to be solely available to support the board of directors. It may be sounding board for senior management, who can try out ideas and present to an advisory council, which can then help refine and shape the offering that is ultimately proposed to the board of directors.

In the United Kingdom, an advisory council is a flexible body which can fulfil a range of roles. This flexibility is the principal attraction as it can be tailored to almost any circumstance so that it provides an effective and positive contribution to a company. As a flexible and bespoke body, an advisory council can often provide a great deal of support to an entrepreneur.

If you require further information about anything covered in this briefing, please contact Anthony Turner, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2020