Advisory Board vs Board of Directors
An advisory board and a board of directors are different groups that help a company or organization but also perform other functions.
Advisory boards give advice.
An advisory board is a group of people who advise a company. The people on an advisory board are called advisors. The company asks them for help and ideas, but the advisors don’t make the final choices for the company. Advisory boards usually have experts who know much about the company’s business.
For example, let’s say a company makes video games. It might have an advisory board with people who know much about video games, like game designers, players, and professors who study games. These experts share their thoughts and experiences to help the video game company improve its games.
Boards of directors make big choices.
A board of directors is a group that makes important decisions for a company. The people on the board of directors are called directors. They are in charge of big things like:
- Choosing the company’s leaders
- Making plans for the company’s future
- Watching over the company’s money
The board of directors has a lot of power. The choices they make can have a big impact on the whole company. That’s why directors have a special duty to do what’s best for the company and the people involved, like the owners, workers, and customers.
How are advisory boards and boards of directors chosen?
Another big difference between advisory boards and boards of directors is how the people are picked.
Companies choose their advisors.
The company gets to choose who they want as advisors for an advisory board. The company looks for people with the knowledge and skills to help the company.
There aren’t any strict rules about who can be on an advisory board. A company can pick anyone they think would be helpful. They might choose people like:
- Experts in the company’s industry
- People with special skills, like marketing or technology
- Community leaders
- Respected business people
The advisors often have other jobs, too. Being an advisor is usually a part-time role, not their main job.
Shareholders elect directors
For a board of directors, the people who own part of the company can choose the directors. The owners are called shareholders. At big “public” companies, there are often thousands of shareholders.
The shareholders vote to decide who should be on the board of directors. The details can be tricky, but the people who own the most shares usually have the most say. The voting often happens once a year at a big meeting called the “annual shareholders meeting.”
There are more rules about who can be a director. Directors have to follow certain laws about how companies are run. For example, directors usually can’t have conflicts of interest, like owning a rival company.
Being a director is usually a bigger responsibility than being an advisor. Directors often spend a lot of time working with the company. Some directors work full-time, while others are part-time.
What do advisory boards do?
The main thing an advisory board does is give advice and ideas. Advisory boards usually focus on specific areas where the company needs help. Some common things advisory boards do include:
Share expert knowledge
Advisory boards often include experts with special knowledge about the company’s business. For example, a medical device company might have doctors on its advisory board. The doctors help the company understand what patients and other doctors need.
The advisors share their knowledge to help the company make smart choices. They might advise on the following:
- Designing new products
- Understanding the latest research
- Serving the needs of customers
Give an outside perspective
Sometimes, companies can get stuck in a rut, always doing things the same way. Advisory boards can bring in fresh ideas and viewpoints from outside the company.
Advisors might say, “Hey, I’ve seen other companies doing things differently; maybe you should try that.” They might also notice problems or opportunities that the company missed. Having advisors with an outside perspective can help a company think in new ways.
Connect the company with useful people.
Advisors often have extensive networks of contacts. They might know many people who could help the company, such as potential customers, partners, or workers.
The advisors can introduce the company to these useful people. For example, an advisor might know the perfect person if the company needs to hire someone with a rare skill. Or, if the company wants to work with another organization, an advisor could help them connect.
Add prestige and trustworthiness.
Well-known and respected advisors can make a company look good. Having big names on the advisory board is like having celebrity endorsements. It makes people think, “Wow if those impressive people are involved with this company, it must be doing something right!”
This prestige can make others more likely to trust and work with the company. It can help the company get funding, attract customers, and build partnerships.
What do boards of directors do?
Boards of directors have a bigger and more formal role than advisory boards. Directors don’t just give advice – they oversee the whole company. Some key things boards of directors do are:
Hire and supervise the CEO
One of the biggest jobs of the board of directors is choosing the CEO. The CEO is like the big boss of the company. The board picks the CEO and decides how much they should be paid.
The board also closely monitors the CEO and other top leaders’ performance. If problems arise, the board might fire the CEO and pick a new one.
Make major decisions
The board of directors makes the really big choices for the company, like:
- What should the company’s main goals and strategies be?
- Should the company buy another company or sell part of itself?
- How should the company spend its money?
The CEO and other leaders make many smaller decisions daily. However, the board must usually discuss and vote on the biggest choices.
Ensure the company follows the law.
Companies have to follow a lot of laws about things like:
- How do they keep track of money
- How they treat workers
- How they do business fairly
Part of the board’s job is to ensure that the company follows all the laws and acts ethically. If there are problems, the board has to figure out how to fix them. The board wants to keep the company out of legal trouble.
Watch out for shareholders’ interests.
The board of directors has a special duty to the shareholders—the people and groups who own the company. The board must make choices that benefit the shareholders.
Usually, this means trying to make the company profitable and valuable. However, it also means ensuring the company is fair and honest with shareholders. The board must give shareholders accurate information about the company’s performance.
How do advisory boards and boards of directors work together?
Advisory boards and boards of directors have different roles, but they often cooperate to help the company.
Advisors share insights with directors.
Advisory boards often spot important trends or problems that the company should address. The advisors share these insights with the board of directors.
This helps the directors stay informed and make good, high-level decisions. The advisory board acts as an extra set of eyes and ears to help the directors understand what’s happening.
Directors set directions, advisors help follow through
The board of directors sets the company’s overall direction and goals. Then, the advisory board gives specific ideas on how to achieve those goals.
For example, imagine a company’s board of directors deciding to expand to a new country. The advisory board could then help plan the details, like:
- Understanding the new country’s laws and customs
- Connecting with local partners
- Customizing products for the new market
The board of directors points the way; the advisory board helps navigate the path.
Advisors are a pipeline for new directors.
Companies often find their future directors on the advisory board first. Serving on the advisory board lets someone get to know the company and show what they can offer.
If an advisor does a great job, the board of directors might invite them to become directors. This lets the company tap its best advisors for bigger roles.
