Advisory board vs. board of directors: it is a decision that can have a significant impact on your business’s future, but how much do you really know about the two options?
From making tough boardroom decisions, to deciding to break into a brand new market, each side has its appeals and responsibilities. Ultimately, however, the two options serve very different purposes and affect your company in different ways.
Deciding between an advisory board vs. board of directors may seem confusing, but it can significantly impact your business.
At Romain Berg, we have the insider tips you need to help boost business and solve your struggles. Read on for everything you need to know and make an informed, confident decision to take your business in the right direction.
What Is The Difference Between an Advisory Board and a Board of Directors?
Before you decide which is best, you should have a solid understanding of just what each option involves.
Board of Directors
Any public company is legally required to have a board of directors, but they are also increasingly features of private organizations. These groups are formal committees, and their role is to act as a governance function for a business.
Powers include the ability to make significant changes in an organization, as well as to vote.
Anyone with a position on a board of directors is legally bound to the business. As a result of this connection, they potentially face liability in the event that something goes wrong.
Directors are primarily responsible for ensuring smooth operation and management of the business. It is also the directors’ job to ensure that all decisions are in the company’s best interests.
Responsibilities often include hiring and firing employees, setting annual goals and targets, executive compensation, and option policies.
Any member of the board of directors will have a vested interest in helping the business to succeed. They have ‘fiduciary duty,’ and will aim to promote and support growth and advancement for the value of shareholders and venture capitalists.
Board of Advisors
A board of advisors works a little differently. Their primary purpose is to support and advise the CEO or executive of a company, enabling them to grow their business.
Unlike directors, advisors are not legally responsible and have no real authority – their role is purely advisory. Most will tend to have a specific skill set or background or be top of their field or industry.
As a result, members tend to be hand-selected by the CEO to fill a particular role and fill very specific gaps when it comes to knowledge.
In a sense, advisory board members act as more of a ‘sounding board’ for the CEO. This is a team with which they can bounce ideas, work through challenges, and rely upon for innovation. The majority will have a genuine interest in the company, and this is their motivation for joining the board.
Advisory Board vs. Board of Directors: Which Wins?
When weighing up the options and deciding between an advisory board vs. board of directors, your decision will be personal. Ultimately, your selection will depend on one thing: the needs and workings of your business and your intentions for the future.
As a general distinction: a board of directors has legally binding responsibilities to a business. They tend to be elected by the company’s shareholders and focus on the future of the business, including long-term profit and sustainability.
Members of the board also face the prospect of being sued and can be held legally responsible for their decisions.
Advisory board members, however, serve only an informal role. They are not necessarily a permanent fixture and can be employed and replaced as required. The members tend to be selected by the executive team or CEO, and their job is to be the provider of selected expertise, advice, and assistance.
The Benefits of Advisory Boards
Advisory boards are a great idea for new businesses and start-ups. Those who are just finding their feet in their niche or industry are sure to benefit from others’ wisdom and experience. The advisory team’s very purpose is to help drive your business forward, but not merely in terms of pure profit.
Unlike directors, an advisory committee is not bound by fiduciary responsibilities. This fact means that they have more freedom when it comes to offering advice and guidance, especially when compared to that of a director.
The involvement of shareholders in directors’ considerations means that decisions have to be strategic. As a result, their vision tends to focus primarily on ‘higher level’ issues and members.
By contrast, an advisory board can be innovative and creative. An advisory board can suggest and try new things.
The relationship between advisors and the management team tends to be more flexible and fluid. It offers a chance to be far less rigid and restrictive than the director-executive relationship. Information is shared more readily, and discussion is a core aspect of the role.
This feature can be a real tipping point in choosing an advisory board vs. board of directors. The former allows for authentic, useful dialogue that can help push the business forward and may appeal to a forward-thinking CEO.
Investing in an advisory board can also be useful for business. Advertising your involvement with advisors shows that you are forward-thinking and actively open to change. Clients and prospective customers will perceive your business as innovative and creative, and this can be a major appeal. As a bonus, the advisors you work with can prove useful contacts down the line.
What To Look For In A Good Advisory Board
Choosing to set up an advisory board can have enormous benefits for your business, but getting started can be tricky. When creating an advisory board, the ultimate goal is to fill gaps in existing knowledge, and so you are going to be recruiting experts in their respective fields.
With the right team, this addition can provide hugely valuable assistance.
When choosing your members, you need to consider the gap you need to fill.
- Which skills and knowledge areas are absent?
- How will having these board members boost businesses?
- And where can you find the experts to help?
Executive management members are primarily responsible for appointing members to the advisory board, allowing greater freedom in selections. This freedom can, in turn, help with choosing the best of the best.
How Can We Help?
Picking a side in the battle of advisory board vs. board of directors can be a challenge, but could have a significant impact on business. At Romain Berg, we are dedicated to helping offer the most useful, relevant, and up-to-date information. We aim to help you take your enterprise to the next level.
From speakers to blog posts, we have an impressive toolkit that can help you stay informed and educated. Our insider info helps you stay informed and helps you while making confident business decisions supported by detailed research.
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