The difference between a board of directors and an advisory board is often misunderstood especially when those who are involved aren’t knowledgeable about the issue. The confusion can be rooted in common terminology (referring to both as “the board”), the lack of a clear and documented explanation of the function of the advisory board in the company’s bylaws, rules or regulations and a different degree of fiduciary duty.
A board of directors is the institution’s governing body and is able to vote on major decisions, like replacing the CEO or making changes to the executive management team. The board can also hold the management accountable for their actions. Board members are legally bound by a fiduciary obligation to the company, and could be continue reading this held liable if they fail to meet the requirements of this standard.
Advisory boards, on the other hand, provide guidance to a company’s leadership. They may be able recommend specific projects or changes but ultimately it’s up to the leadership of the company to accept or reject the advice.
Typically an advisory panel will consist of experienced third parties that bring with them a breadth of industry knowledge and connections. Those in the advisory role can help businesses stay current with the latest trends and make recommendations that help the company expand. This could be as simple as streamlining customer service in line with recent purchasing patterns or as complex as creating an innovative strategy for global expansion.