Celebrity Advisors Provide Visibility and Cache in the Right Doses

Before the implementation of what will one day undoubtedly be referred to as “modern governance practices”, it was accepted for public companies to add a little star power to their boards of directors. Business experience was not necessarily required. Actor Sidney Poitier served as a director on Disney’s board. Boxer Evander Holyfield once served on the board of directors for the Coca-Cola Bottling Company. Before O.J. Simpson was charged with murder, he served on a number of boards, including the audit committee at Infinity Broadcasting Corp! And actress Priscilla Presley was elected to the MGM board in 2000, where she remained until the company filed for bankruptcy in 2010.

Star Power and Stock Prices

Like many others in our celebrity-obsessed society, organizations and investors can be impressed with and influenced by fame. And to be fair, from a business perspective, celebrity associations often translate into increased profit. A glamorous celebrity serving on a board or providing an endorsement can lend instant visibility and pizzazz to a corporate brand. The cache and hip star power of a celebrity board member or advisor can help young organizations attract investors. In fact, a 2010 study conducted by a group of university researchers, “Reaching for the Stars: The
Appointment of Celebrities to Corporate Boards,” found that the appointment of
a celebrity to a board of directors can produce an immediate jump in stock
prices. The study pointed to the case of former professional golfer Nancy Lopez
Knight, who has served successfully as a J.M. Smucker director since 2006. The
researchers directly attributed, as much as a 2.1 percent hike in stock prices, to Knight’s celebrity status.

The Lance Armstrong Rule

But with more emphasis than ever before on adhering to best practices for responsible corporate governance and the increased focus on risk management, public companies need to take exceptional care in choosing qualified directors who bring much more to the boardroom besides a famous name.

In the wake of the recent recession, the SEC has adopted changes to various reporting requirements. Included in this was an amendment to Item 401(e). The amended rule now requires that public companies to disclose the “specific experience, qualifications, attributes or skills” of a director or a director nominee” and show how such expertise relates to their role as a director. This, of course will serve to limit the number of directors who are appointed by virtue of their celebrity status only. Perhaps the SEC was influenced in part by Lance Armstrong’s disastrous turn as a director for Morgans Hotel Group. The Tour de France champion missed 11 board meetings in 2007 and quit the following year.

Nevertheless, there are a number of celebrities with varied backgrounds, currently serving quite successfully on public boards possessing additional expertise in business, finance or academia, whose specific skill sets fill a needed role in the boardroom. For example, Deepak Chopra M.D., famed spiritual author, public speaker and Adjunct Professor at the Kellogg School of Management, serves as a director for Men’s Wearhouse. And Wayne M. Rogers, the actor who played Dr. Trapper John McIntyre in the iconic series M.A.S.H., made another name for himself in the financial world and now serves as a member of the board of directors for Vishay Intertechnology Inc.

Celebrity Advisors

However, these types of elite celebrity directors are the exception and not the rule. Organizations seeking to gain from the “visibility effect” of celebrity to boost stock value and attract the attention of investors would be better served to appoint a celebrity to a non-voting advisory board. Having a diverse board of advisors is especially important for a young startup, not only as a means to attract investors, but to assist with risk management, networking, public relations and to obtain valuable feedback as well.

“Square” the potentially disruptive mobile payments startup launched just two-years ago by Twitter founder Jack Dorsey, added television actress Alyssa Milano to its growing board of advisors. In addition to her star status, Milano was added due to her “direct and relevant experience in contracts, promotion, distribution, manufacturing, licensing issues, retail, philanthropy, and a deep insight into present and future technologies and social movements around them.” The star is also recognized as a power Twitter user, philanthropist and a successful entrepreneur. Dorsey credits her with bringing “a clarifying presence to everything we do.”

In a similar vein, SportsBlog Nation recently added actor and avid technology investor Ashton Kutcher to its board of advisors. Besides his celebrity status, Kutcher was chosen for his networking connections, business development and recruitment skills.

The board of directors is responsible for corporate governance, oversight of senior management, supporting the strategic mission of the company and of course, protecting shareholders’ investments. Advisory boards on the other hand are less formal and can thereby be filled with a talented, diverse group of advisors, carefully and strategically selected. This group can greatly assist directors in the ever-changing competitive environment. Dedicated celebrity advisors, properly managed, possessing appropriate skill sets, sharing the organization’s goals and vision can successfully fulfill a role and add immense value to an organization.

Essential Consideration when Evaluating a Board: the Life Cycle Stage of the Organization

In the wake of the boardroom deficiencies uncovered during the 2008 Wall Street crisis, more attention than ever before is placed on sound responsible corporate government practices.

It’s true that boards of directors come in all shapes and sizes. And it’s true that there is no magic one-size-fits-all formula that can provide organizations and shareholders with all of the tools they need to avoid the many pitfalls inherent in the modern corporate governance environment. But conducting an annual evaluation of your board of directors, preferably by an outside independent firm, can help pinpoint shortcomings in corporate governance practices, director training, risk management, the makeup and size of the board, standing committees, as well as board independence. However, one vital criterion that’s often overlooked when making a board assessment is the life cycle of the company to which the board serves.

Evolving Corporate Stages

Organizations evolve and mature over time just like people do. For example, a young technology startup in the pre-IPO stage may focus its board activities within the framework of luring investors, networking, public relations and marketing and obtaining legal advice. But as the upstart tech company goes public, the priorities of the board and the organization may need to shift gears to properly implement more thorough governance and accountability. As a company matures, grows in size and becomes more diversified with perhaps multiple global outposts, the makeup and focus of the board of directors should evolve as well. A more mature company may require additional independent directors, more diversity of a variety of sorts and even less time from its directors as circumstances become more structured and predictable.

It is thereby important to consider the evolution and stage of the company when evaluating or structuring its board of directors. Just like the company executives, the board should transform (albeit slowly) over time. An example can perhaps better illustrate this point.

Amazon.com went public in 1997 and by 2002 it had revenues of $3.9 billion. The company’s board consisted of 6 directors including Jeff Bezos, the company founder and two venture capitalists. There were two CEOs on the board, one with strong consumer products experience and the other with a blue-chip retail background. Patricia Stonesifer, at the time Co-Chair of the Bill and Melinda Gates Foundation rounded out the group.

Today Amazon.com is a diversified online retailer that has grown steadily both organically and through a number of successful acquisitions including Zappos.com. Forty-five percent of its $34 billion in revenues come from outside North America and accordingly its board of directors looks quite different. The board today has eight directors, only three of which are the same as in 2002. This slightly larger board is both more appropriate for the current size of Amazon and allows the company to benefit from more varied experience with the two additional members. There are still two VCs on the board, one from the original group. One director is based in Singapore and has significant international experience, quite important given where its revenues are coming from. Interestingly, another director on the current Amazon board  has Palm Inc. and Apple experience and is currently head of Hewlett Packard’s Personal Systems Group. This certainly tells us a great deal about Amazon’s current strategy and corporate priorities. What is important to notice from this illustration is that the board of this very successful company has significantly changed over a mere nine years. One can only assume that these board changes have come about at least partially as a result of regular board evaluation in light of the company’s strategy and a consideration of the stage at which the company is at.

Identifying and paying attention to the relative life cycle of a company allows appropriate adjustments to be made to the structure of the board and the scope of the board’s mission. As the goals and strategic objectives of a company evolve over time, so should the board of directors.

Corporate Governance Life Cycle

There is a large body of research and analysis connecting sound corporate governance to the evolving organizational life cycle of public companies. The dynamic view of corporate governance dictates that corporate governance can’t be practiced in a vacuum. The life cycle bible, “The Life Cycle of Corporate Governance,” authored by Igor Filatotchev and Mike Wright, analyzes governance issues through the prism of financial, industrial and institutional life cycles and the chaotic transitions between these shifts. In a nutshell the conclusion is that the requirements for responsible corporate governance should be continually evaluated to account for the present-day realities of an organization’s structure.

A thorough top down approach to board evaluations that includes a consideration of both the organizational and board life cycle will hopefully result in a finely tuned board of directors that is ready and able to govern responsibly.