Directors of boards are a crucial element in the performance of an organization however, they do have some key distinctions. 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 obligations, whereas an advisory board doesn’t. This makes a board of directors legally accountable for the actions they take and implies that they must consider the impact of their decisions on the company’s financial bottom line.
However even though a board of advisors isn’t a fiduciary obligations, it’s vital for an organization to evaluate the potential impact of their recommendations prior to taking the advice on board. For instance If a CEO decides to follow a recommendation that an advisory board has made and the decision is detrimental to the business, then the members of the advisory board could be sued by the company for negligence.
To avoid this, businesses must ensure that their advisory board has clear written clarification of its role through an executive resolution or other document before they recruit members. Alternatively, it’s possible to state clearly that the advisory board is not a legally-constituted board of directors and doesn’t be held accountable in the company’s bylaws or by obtaining a written explanation from the CEO.
It’s also a good idea for a business to establish guidelines for evaluation of its advisory board that outlines the purpose and scope of the assessment. Establishing clear guidelines and objectives will help ensure that the board gets the most value from its members, whether it’s a regular board or an advisory board.