A board of directors and an advisory board are two different entities with distinct roles, and often, there is confusion around the distinctions. This is in part due to the fact that some companies use the terms interchangeably and also the term “board”, which has many meanings in the business world. This is further exacerbated by the lack of defining the responsibilities of the advisory board in writing through a resolution of the board or bylaws.
A clear, documented distinction between your advisory board and board of directors will assist you in avoiding confusion, especially if work with individuals who might not be legally allowed to be directors, such as teachers setting micro-schools or experienced entrepreneurs with limited personal shares. This is crucial as a legally-constituted board of directors has responsibility, liabilities and risks that an advisory board doesn’t have.
A advisory board for the CEO and the management team is an advisory continue reading this board. It offers them information and connections that they would not normally have. Typically advisory boards are not shareholders or investors in the company and they don’t have any voting rights.
A board of advisors, despite their expertise in specific fields has no authority or power to direct an organization. This is because the management team and CEO are the ones responsible for making decisions not the advisory board. Only when an advisory committee receives formal board committee status, with voting rights and insurance for liability under Deeds Indemnity and Directors and Officers Insurance will be empowered to steer the organization.