The main difference between an Advisory Board and a Board of Directors

The main difference between an Advisory Board and a Board of Directors

Today, the pace of transformation companies need at the strategic and operational levels is changing. It requires additional competencies in the top management team. Forming an advisory board is one of the solutions. So, what are their responsibilities apart from the board of directors?

Advisory board: the right hand of the board of directors

More and more organizations are setting up advisory boards. There are good reasons for this – for example, gaining expertise in new technologies and scientific developments, and the desire to understand better the nuances of doing business in international markets. An advisory board can be useful to a company in selling goods or services to government agencies and dealing with public relations or reputation management issues. However, the advisory board is not a substitute for a statutory board of directors or supervisory board. On the contrary, a well-formed advisory body is an additional source of knowledge and experience for the board of directors, strengthening its position.

The board of directors and the advisory board are similar in structure. Both councils must have a chairperson who leads the meetings and regulates procedures for their conduct. As for advisory boards, the owner is usually not their chairman, and a person with good moderation skills is invited to this position.

What are the differences?

The selection and control of senior executives, monitoring the organization’s activities, approving the strategy, and assessing risks – these and other important areas are formally assigned to the board of directors. The advisory board may support it by providing expert opinions or a network of contacts, but the board of directors makes decisions and is responsible for them.

Unlike members of the board of directors, members of the advisory board are not required to comply with the same degree of formality since they do not perform the function of supervision or other functions characteristic of independent directors. The board of directors and the advisory board are separate but parallel structures. A clear distinction between the two councils implies a much greater degree of freedom for the advisory council in terms of its composition and competence. The absence of corporate governance powers and statutory responsibilities allows advisory board members to meet less frequently, and focus on a narrower range of issues.

So, the board of directors is responsible for the general welfare of the corporation. This body is authorized to manage the business and affairs of the company or to control management with the help of specially designed board portal solutions. Here you can find more about the comparison of board portal software.

    • to act honestly and in good faith, under the interests of the company (another name is the director’s fiduciary duty);
    • demonstrate the care, diligence, and skill that a reasonably prudent person would display in similar circumstances.

Nuances of the work of the advisory board

The advisory board is a collegiate body, which usually includes the owners, management, and invited external experts. The body works de facto in the regime of the board of directors, discussing strategic issues and developing recommendations – guidelines for action for management. Members of the advisory board cannot be held liable as full directors of a legally constituted board of directors. As a business owner, you have every right to accept or override any recommendations made by the advisory board.