Boards of directors and advisory boards play a crucial role in the success of a company, but there are a few key differences between them. According to a recent piece by board expert Marissa Levin, the main distinction is that a boards of directors has fiduciary responsibilities while an advisory board doesn’t. A board of directors is legally responsible for all actions they take and must think about the consequences of those decisions on the bottom line of the company.
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Although boards do not have fiduciary responsibility, it is still important for an organization that they carefully consider the impact of their recommendations before making them. If a CEO follows any recommendation of an advisory board, and it is detrimental to the business, then the members of that advisory board may be sued for negligence.
To avoid this, organizations must ensure that their advisory boards are clearly defined in a written document such as a resolution of the board before they can hire members. It is also possible to declare that advisory boards do not have any legal responsibility and is not an official board of directors as stated in the company’s bylaws. Or, a written explanation given by the CEO.
It’s also a good idea for a company to establish an evaluation policy for its advisory board, which includes objectives and the scope of the evaluation. Establishing clear guidelines and objectives will help ensure that the board gets the best value from its members, whether that’s a regular board or an advisory board.
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