Many companies are plunging into entirely new areas and can really use some advice. That’s where an advisory board comes in. Accessing advisors’ expertise can be invaluable, but it comes with some risk to the company’s trade secrets. Here’s how you can reduce those risks.
A good board of advisors can give advice, keep an eye on the market and future trends, and make strategic alliances and connections. Unlike corporate boards, advisory boards usually don’t have any fiduciary responsibility to the company or its stockholders and their advice is non-binding. They basically act as the experienced and wise senior partner or relative who is there to help out the company.
What’s in it for the advisors? They can do very well in the relationship too — they often get a salary and/or stock options.
Here comes the downside: There can be risks to company trade secrets when company officers or employees confide in an advisory board. Reduce those risks by having all advisors sign an advisory board agreement. Formalizing the advisory board relationship can protect all involved.
You need to officially engage an advisor through a letter agreement that delineates the expectations and role for the advisor, confidentiality requirements, and any compensation the advisor is to receive. Counsel may also want to have advisory board members to sign a separate confidentiality agreement.
Here are some terms that should be included in any advisory board agreement:
- A description of expected services by the board member, including
- Providing strategic guidance and direction;
- Providing introductions to possible strategic partners and sources of investor funding, and participating in meetings with such individuals or entities; and
- Contributing ideas and information about the development of products and services.
- A statement of any compensation the board member will receive, e.g., an advisory board fee, stock options.
- A statement that the company will reimburse board members expenses.
- A statement of the length of the member’s term on the advisory board.
- If applicable, a provision that the company may use the board member’s name, image, and biographical data in connection with the company’s promotional efforts.
- A statement that the board members may not also provide similar services to any business competitors without company consent.
- A confidentiality and nondisclosure agreement.
- A statement that the board member is not an agent of the company and has no authority to enter into contracts or make any representations and commitments on the company’s behalf.
- A statement that any intellectual property created a part of board participation is owned by the company, with an assignment of any such intellectual property rights to the company.
- A provision that the company may remove the board member at any time for any reason on written notice.
For more on advisory boards, including a sample form detailed model advisory board agreement letter, go to CEB’s Internet Law and Practice, chap 4.
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