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What is the level of influence of a board observer?

Nobody can build a great business alone. What is the role of an EFFECTIVE board observer? What should he/she be doing and how is this different from a board member? I would love to know some of the activities that they should be partaking in. Have you had any experiences with great board members or board observers? Bad ones? What did you/they do? For myself, I feel as if you get out of them what you put into their creation, development and operation. Thoughts?

22 Replies

Shahab Riazi
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Shahab Riazi Advisor
Sr. Manager, Enterprise Services, SAP
An effective board observer brings a missing perspective to the board that may or may not be a part of the current board makeup. This is important because while the observer does not have a vote and can't really be covered legally as a board member he or she can be vocal with their take and opinions about the proceedings of the board. I would only bother with having an observer at the board if there is a specificbackground or skillset that is needed and is missing from the current make up of the board.
Arthur Lipper
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Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
I advise investors in privately owned companies NOT to go on the Board of Directors as they then have an equal obligation to protect the interests of all of the shareholders and therefore can be less effective in protecting their own interests. I do recommend that they have a contractual right to attend all Board meetings, including sub-committee meetings and to receive all data distributed to Directors. Of course, there are restrictions as to the dissemination of confidential data and a termination of their Observation Right at a defined time. As an Observer they can have the ability to express opinions and offer advice.
Laura Oliphant
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Laura Oliphant Advisor
Business Development and Venture Capital Professional
Observers do not have the duty and care that directors have. A lot of the time, especially when they represent corporate VC, they are observers because of liability concerns on the part of the parent. A good observer will give .you opinions, but will probably not give them to you in a board meeting, so as to not give the appearance that they are directing the activities of the company (this makes them a de facto director
Neil Gordon
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Neil Gordon Advisor
Board Member, Corporate Finance Advisor and Strategy Consultant
The observer's role is to gain access to what otherwise would be closed Board of Director's meetings, but without, as Arthur says above, the fiduciary obligations of Directors. Don't expect an observer to offer unbiased advice, and don't expect them to have any broader role.
Arthur Lipper
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Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
You are wrong on the law. The Observer does not have the personal liability of a Director as the Observer does not vote.
Ra'ed Elmurib
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Ra'ed Elmurib Entrepreneur
High Tech Sr. Executive | Corporate M&A and Ventures | Angel Investor | Startup Advisor
From my point of view, having been a Board Observer for many Strategic Investors, they need to enable the company into a new Market, Partnership or Networking. Many times a Board Observer just "Observe" and report back and that's the worst use of space. They need to be active promoting the company and its product, advertising its capabilities, and introducing the company to a new possible markets. -Ra'ed
Arthur Lipper
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Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
It all depends on the Observer. I assure you that in the cases where I have served in such a capacity a significant contribution has been made.
Dane H. Madsen
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Dane H. Madsen Entrepreneur • Advisor
CEO, SVP Business Development | Domestic & International, Product Marketing | Open to new connections
Board observers usually serve one master - the investor. They can be helpful, but they are not fiduciaries and have no obligation to act as one. Dane Madsen Dane@DaneMadsen.com [removed to protect privacy] Mobile Sent from my mobile device. Forgive typographical and grammatical errors.
Arthur Lipper
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Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
Correct, they are most often serving the interests of an investor having negotiated the right to appoint an Observer.
Hambirrao Patil
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Hambirrao Patil Entrepreneur
Founder, Software Engineering Director at Expedite Informatics Pvt Ltd
Hello @Olesya. I have my views, which I'd like to explain on your questions one by one.

What is the role of an EFFECTIVE board observer?
-If they have full legal rights to an observer role and without restrictions then consider them as full-fledged board member other than legal voting.

What should he/she be doing and how is this different from a board member?
-They listen, ask, advice as full-fledged board member other than legal voting.

I would love to know some of the activities that they should be partaking in. Have you had any experiences with great board members or board observers? Bad ones? What did you/they do?
-At SME distinction between a voting member and an observer is not very significant, because board decisions are often based on consensus, not vote. So in those circumstances, if observer have full legal rights and without restrictions he can be much influence as a member. Good ones listen, contribute ideas and create value as minority or sometimes large investors. Bad ones can create havoc. Always bring your observer, by all means, as long as he/she stays silent literally.

For myself, I feel as if you get out of them what you put into their creation, development and operation. Thoughts?
-If you place board have full legal rights to an observer role and without restrictions, then accept them a full-fledged board member other than legal voting, which is unlikely to happen except in extreme circumstance.

Thank you!
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