Advisory and shadow boards – ill-fitted solutions for governance and inclusion

Parmi Natesan | CEO | Institute of Directors South Africa (IoDSA) | mail me |

Advisory and shadow boards are increasingly being touted as innovative tools to improve diversity, bring fresh perspectives to decision-making and even develop underrepresented talent for future governance roles. While they may seem appealing at face value, these informal structures are, in my opinion, misaligned with South Africa’s governance frameworks.

An advisory board is typically composed of external experts or professionals who provide specialised guidance to the formal board or executive team. However, advisory boards operate purely in a consultative capacity and are not part of the formal decision-making structure.

A shadow board, by contrast, is usually made up of internal employees, often from younger or underrepresented groups, designed to mirror the formal board. While shadow boards aim to provide fresh perspectives and a pipeline for future directors, they too have no decision-making authority or accountability.

The term “board” has specific connotations in South African law and governance. A board is widely understood to mean the formally recognised group of individuals who bear legal director duties under the Companies Act or common law, are accountable for making business judgment calls on behalf of the company and operate as the ultimate governing body within the company’s formal governance framework. All of which advisory or shadow boards are not.

The governance gap

• Misalignment with the Companies Act

The Companies Act, 71 of 2008, places explicit legal responsibilities on directors. These include acting in the best interests of the company (Section 76(3)(b)), exercising a duty of care, skill and diligence (Section 76(3)(c)), as well as managing conflicts of interest (Section 75).

Advisory and shadow board members do not carry these statutory obligations because they are not formally recognised as directors.

• Risk to confidentiality 

Boards frequently deal with sensitive and confidential information critical to the organisation’s strategy and competitiveness.

While advisory and shadow board members can sign confidentiality agreements, these are significantly weaker than the legal duty to keep company information confidential, as imposed on directors…