Board of Directors Vs Advisory Board

A board of directors is an organisation composed of individuals who are accountable for the governance, control, and direction of that organization. They are accountable for the legal obligations of a business and are held to a strict level of accountability. This means that if they fail to perform their fiduciary duties they may be personally liable.

An advisory board, on the other hand is a group of people who provide mentorship and advice on how a company should be run. The advice they give is more direct, and their focus is on development, growth and strategy, not reporting and governance, reducing risk and avoiding risk of downside.

Ideally, an organization should clearly define the role of its advisory board in all official documentation like meeting minutes, as well as in the way of communication to avoid confusion. This will ensure that they do not accidentally cross into the realm of a board of directors, which could have serious legal consequences for members if they’re not fulfilling their fiduciary obligations.

The distinction between advisory boards and board members can be somewhat unclear in practice as some companies refer to their advisory boards as “the board.” It’s worth putting this in writing in order to have a sense of clarity and to avoid any mistaken assumptions. A formal written declaration defining the purpose of an advisory board helps to minimize the risk of confusion for those involved. This is particularly useful when members of the advisory board might have been previously part of an executive board or are new to an organisation.

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