Grade, who has not worked in TV for five years, is head of Pinewood-Shepperton film studios and chairman of National Lottery operator Camelot.
Last year, he was one of the names to emerge for the chief executive's jobs at ITV, but at the time a spokesman for Grade said he was "not interested" in returning to TV.
SMG chairman Don Cruickshank said: "Michael's track record in the media sector is well documented and I'm confident that his experience and contribution to the future direction of SMG will be of great benefit to the company."
Grade joins the board as former Telewest chief executive Adam Singer, who has been an SMG board member since 1995, steps down, as does Fiona Harrison, who has resigned on health grounds.
Singer leaves after he was appointed to the content board of new super regulator Ofcom.
Grade will join the SMG board as a non-executive director with effect from September 1. As well as Channel 4, Grade is also the former chairman and chief executive of First Leisure.
Also joining the board is David Dunn, currently chairman of Brammer and a director of First Group and Croda International. In addition, he was formerly chief executive and chairman of Scapa Group.
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