Celebrity Advisors Provide Visibility and Cache in the Right Doses

September 13, 2011 at 6:06 pm

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.

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Entry filed under: Business, Corporate Governance.

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