In our paper, Advisory Directors, which was recently made publicly available on SSRN, we study the characteristics and effects of directors dedicated to providing strategic counsel to the chief executive officer (CEO). The question of how to structure corporate boards for effective oversight of top management has attracted significant academic and regulatory efforts in recent years. In contrast, how best to structure the board for optimal advising remains an important but much less investigated topic.

In an attempt to bridge this gap, we propose that the board’s advising functions are best performed by a distinct class of independent directors minimally involved in monitoring management. Specifically, we define an advisory director as an independent director who does not serve on any of the principal monitoring committees but serves on at least one advisory committee if the company has any. We argue that such directors are best positioned for effective advising because their minimal involvement in monitoring enables them to develop a trusting relationship with the CEO and provides the time needed to focus on strategic issues. This facilitates information exchange with the latter, makes him more likely to seek their opinions, and provides a friendly sounding board for important strategic proposals.

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