Boards of directors and advisory boards both play a crucial role in the success of an organization, however there are some important distinctions between them. According to a recent article by board expert Marissa Levin the main difference between a board of director and an advisory board is that a board has fiduciary duties, while an advisory does not. A board of directors is legally responsible for all actions they take and must evaluate the effect of their decisions on the bottom line of a business.
However even though a board of advisors doesn’t have fiduciary duties, it’s essential for a company to consider the implications of their recommendations prior to taking it into consideration. If a CEO accepts the advice of an advisory board and it proves to be detrimental to the business, the members of the advisory board could be accused of negligence.
To avoid this, organizations must ensure that their advisory committee has a clarified in writing its role through an agreement with the board or another document before they recruit members. Additionally, it is possible to state clearly that the advisory board is not a legally-constituted board of directors and doesn’t be held accountable in the bylaws of the company or through a written explanation from the CEO.
It’s also a good idea for a business to have an evaluation policy for its advisory board, which includes objectives and the scope of the evaluation. It doesn’t matter if it’s an advisory board or a regular board of directors, setting clear guidelines and objectives for an evaluation will help to ensure that the board receives the maximum value from its members.