Corporate Advisory Boards, Their Role and Value

Presenters:

Alexander B. Kasdan, Managing Director

William F. Capps, Partner, Chairman, Corporate Department

CORPORATE ADVISORY BOARDS: THEIR ROLE AND VALUE

August 1, 2013

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Alexander B. Kasdan is a Managing Director at DelMorgan & Co. He has more than twenty years of investment banking, real estate, corporate law and corporate strategy experience. Alex has executed over 100 domestic and cross-border transactions totaling more than $10 billion in overall volume in a variety of industries. Prior to joining DelMorgan, Alex founded Convergence Capital Partners, LLC, a boutique investment banking advisory and real estate investment firm and was an investment banker at Barrington Associates, Peter J. Solomon Company, Credit Suisse First Boston and Merrill Lynch. Alex practiced law with O’Melveny & Myers LLP (formerly O’Sullivan Graev & Karabell LLP) and Paul, Hastings, Janofsky & Walker LLP (formerly Battle Fowler LLP), where he specialized in mergers and acquisitions, private equity and corporate finance transactions. In addition, Alex served as Corporate Counsel in charge of business development at Schlumberger Ltd., a global oilfield and information services company. Alex graduated magna cum laude from Middlebury College with a B.A. degree in Economics and Italian and was elected to Phi Beta Kappa during his junior year. In addition, he holds a J.D. degree from Columbia University Law School and has studied at the University of Florence in Italy. Alex is admitted to the Bar in the State of New York. Alex is a Senior Advisor to Governance and Transactions LLC, an advisory firm established in 2003 by Mr. James L. Gunderson, former Secretary and General Counsel of Schlumberger Limited, to assist boards, management and owners with corporate governance, compliance, structuring and strategic transactions.

100 Wilshire Blvd. Suite 750 Santa Monica, CA 90401 (310) 980-1718 www.delmorganco.com [email protected]

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Bill Capps is a partner and chairman of the Corporate Department. He represents some of the Firm's higher visibility corporate and banking clients in many business matters, with particular emphasis on securities matters (including mergers and acquisitions and representation of Special Committees), international matters, real estate and building materials companies, corporate finance, franchising, executive compensation planning, litigation management and health care transactions. His experience includes serving substantial corporate clients in all business matters. In addition, Bill is a licensed real estate broker. Bill holds a J.D. degree from Boalt Hall School of Law, University of California, Berkeley, 1973, and a B.A. degree with high honors from Whittier College, 1968. Representative Experience: •  Representation of Fortune 500 companies in all aspects of international

transactions •  Representation of building materials industry •  Representation of significant families in Southern California in business

and personal planning including succession planning •  Strategic litigation management for major disputes

1900 Avenue of the Stars 7th Floor Los Angeles, CA 90067 (310) 201-3513 www.JMBM.com [email protected]

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WHY CORPORATE ADVISORY BOARDS   Purpose of an advisory board: superior corporate governance

  Provide non-binding informed guidance on strategic direction and growth   Allow the company to access high-quality experience and advice   Increase likelihood of long-term success

  Function of senior advisors: types of advice   Board composition and structure   Board member training   Board member evaluation   Board interaction with owners and senior management   Advisory board v. board of directors   Compensation issues   Periodic meetings   How to attract senior advisors

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WHY CORPORATE ADVISORY BOARDS

  Open scope of advice: marketing, human resources, new markets, science, technology, finance, dealing with outside advisors, etc.

  Feeder for board of directors   Safe harbor for future directors to get to know the business   Informal interaction with management   Strategic planning   Transactions / due diligence   Acquisition integration   Capital raising   Exit preparation and sell-side assistance   In short, leveraging multi-faceted knowledge and expertise

Corporate Advisory Boards: Their Role and Value

Presented By: William F. Capps

[email protected] Jeffer Mangels

Butler & MItchell

August 1, 2013

1. Purpose and Definition of Advisory Board

Corporate Advisory Boards

Role as senior advisory counsel on important or technical issues

•  Merger and acquisition •  Financing and capital raise •  Operations •  Marketing and promotion •  Strategic thinking •  Technology

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Compare liability issues and fiduciary responsibilities vs. conventional board of directors

•  Distinguish between an advisory board and a fiduciary board •  Control of board of directors by management is lacking

because the board has an independent liability and responsibility

•  Legal duty (care and loyalty) •  Legal responsibility for decisions •  Legal protections •  More narrow expertise

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Advantages of non-fiduciary board

•  Suitability of technically trained individuals as BOD members •  Time and responsibility demands •  Usually private companies, nonprofits and technology

companies •  Nonprofit functions: give or get •  Put company in touch with best professional advisors like

attorneys and accountants and bankers •  Formalize advice process •  Safe harbor before bringing issue to the fiduciary board •  Focus input on specific issues and problems •  Customer and competitor issues •  Relatively new and growing popularity

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Process and steps in formation of advisory board

•  Define advisory member skills desired •  Determine expectations (is name on website sufficient?) •  Create your pitch and compensation package •  Brainstorm the target list of advisors •  Seek out the targeted advisors and recruit them •  Celebrate, incorporate and communicate

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Additional resources to consider

•  Compare with companies like The Board Group who are building boards (both advisory and fiduciary) for a fee

•  Books for reading •  The Directors and Officers Guide to Advisory

Boards by Mueller •  Game Changing Advisory Boards by Howfield

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2. Functioning of Senior Advisors


(a)  Unbiased, inexpensive, expert help (b)  Advisory relationship as opposed to legal role of directors (c)  Reach into ecosystem of the company in its environment (d)  Tailor made to company (e)  What are problems of an advisory board?

-  Not enough time -  Not enough wisdom -  Too much effort -  Expensive

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3. Board Composition and Structure


(a)  Five to eight members (b)  Chairman as leader (c)  Two or three year "term" (d)  Look to needs of the company rather than the advisor (e)  Members must meet four times per year and have time

for meetings (f)  Tips for doing it right with technology

-  Ask for small investments? -  Run semi-annual advisory dinners -  Don't overplay advisors in your VC and other

investment pitches

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4. Board Evaluation and Training


(a)  Yearly evaluation by board itself and by senior management (b)  Anonymous survey to get honest input (c)  No record kept for litigation purposes (d)  "Hard" data points are few for evaluation (e)  Evaluation of advisors more subjective than evaluation of fiduciary

board member (f)  Training may increase performance of board of advisors

-  Financial -  Regulatory environment

(g)  Develop metrics to measure performance (h)  Making sure board members know what the owners want

-  Values and philosophies -  Reinvestment of earnings

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5. Board Interaction with Owners and Senior Management


(a)  Less formality required (b)  Members should actually have a more collaborative role

with senior management

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6. Compensation Issues


(a)  Fee for meeting (b)  Fee for long standing service (e.g. options) (c)  Dependent upon quality and performance of individual (d)  Should not be treated as a lifetime perquisite (e)  The greater the expertise, the greater the reward (f)  Discuss actual forms of agreement used by technology

companies in connection with advisory board

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7. How to Attract Senior Advisors


(a)  Flattery (b)  Self interest in industry (c)  Networking without liability (d)  Use professional advisors?

-  Attorneys -  Accountants -  Bankers -  Investment bankers

(e)  Role as stepping stone to future fiduciary board membership (f)  Role as place for senior advisors who have a less time and/or

less energy to devote to company

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Corporate Advisory Boards, Their Role and Value

Business

Transcript of Corporate Advisory Boards, Their Role and Value