You would be forgiven for thinking an advisory board and a board of directors were one and the same. However, while each type of board provides valuable strategic business insights, the two structures perform different functions.
Let’s explore the key differences between a board of directors and an advisory board.
The Role of a Board of Directors
A board of directors (or governance board) is a group of individuals who are legally responsible for the governance, control, direction and management of an organisation. Legislations and regulations are in place to set out the responsibilities and liabilities of a board of directors and these rules can vary from state to state or country to country.
Members of a board of directors are elected by business shareholders to make decisions on their behalf. They are accountable for the performance of the organisation in line with its goals and objectives and will meet at regular intervals to provide general business oversight and to set corporate policies.
Directors have a fiduciary duty to govern the organisation on behalf of the shareholders or members of the company, and their decisions are binding both personally and on behalf of the business.
While the number and composition of members on a board of directors can vary, a board of directors will typically comprise a combination of executive managers from within the business, along with external, independent directors who can provide an objective and impartial perspective. A board of directors typically meets on a monthly basis with interim activities and discussions between meetings.
The Role of an Advisory Board
An advisory board is a group of individuals who are appointed by an organisation to provide specialist or strategic advice to help solve a range of difficult or complex business problems.
An advisory board will typically comprise of key business representatives, an independent Chair and carefully selected external professionals (advisors) who are appointed based on the specialist knowledge or technical expertise they can provide to help solve a range of challenges the business may be facing.
Unlike a board of directors, the members of an advisory board are not authorised to act or make binding decisions on behalf of the organisation and they do not have any fiduciary responsibility. Advisory boards are not legislated or regulated by the Corporations Act or any corporate governance codes within Australia.
Advisory boards generally meet on a semi-regular basis several times per year to support or complement the businesses existing corporate structure. A well-structured advisory board built on a best practice foundation includes a Charter to set out the terms of reference for the advisory board structure, participation and operations.
The reasons a business utilises an advisory board can vary significantly. It could be to provide advice on how to grow the business, manage a significant transition, help the business handle a major crisis, expand into new markets or tackle a specific business problem.
By providing access to specialist expertise a business wouldn’t normally have access to, an advisory board utilises a combination of critical thinking, robust analysis and strategic insights to ensure the business owner, executives or directors are adequately informed when making key business and strategic decisions.
How is an Advisory Board appointed?
Advisory board members are usually appointed by:
- Directly contacting members of the business community to request their assistance, or;
- Reaching out to a professional body such as the Advisory Board Centre.
In contrast to the often rigidly defined terms for board of directors, advisory board appointments are typically flexible to allow for the make-up of the advisory board members to shift and change over time to meet the needs of the organisation.
How can the Advisory Board Centre help?
The Advisory Board Centre is an independent professional body for the advisory sector. The Centre was founded to support and improve the effectiveness of the global advisory board sector, including the professionals who fulfil an advisory function and organisations for whom they serve.
We provide education programs for organisations, certification for advisors and the complimentary Advisor Concierge service.
If you are exploring an advisory board for your organisation or considering joining an advisory board as a member, the ABF101 Advisory Board Best Practice Framework™ is a helpful resource.
Find out more about our Advisor Concierge service or contact us for more information.