A board of Board Member directors and an advisory board are two distinct entities with distinct responsibilities, and often there is confusion over the differences. In part, this is due to the fact that some companies employ both terms interchangeably, and the term “board” has numerous meanings in business. This is further exacerbated by not defining the function of the advisory board in writing, either through a resolution of the board or bylaws.
It is essential to make clear the distinction between your advisory board and your board of directors. This will help you avoid confusion when you are working with people who may not be legally allowed to serve as directors, like teachers who create micro-schools or experienced entrepreneurs with limited personal stakes. This is essential as a legally-constituted board of directors will carry the responsibilities, risks and liabilities that an advisory board doesn’t have.
A sounding board for the CEO and management is known as an advisory board. It gives them suggestions and connections that they would not otherwise have. Typically, advisory boards are not shareholders or investors and do not have a voting stake.
A advisory board, despite their expertise in specific fields is not given the authority or the power to steer an organization. The CEO and management team are the ones who make the decisions, not an advisory board. Only when an advisory board is given formal board committee status with voting rights and liability coverage through Deeds of Indemnity and Directors and Officers Insurance can be empowered to steer the organization.