There is often confusion about the differences between a board of directors and an advisor board. This is in part due to the fact that certain companies use the terms interchangeably and the word “board” is a word with numerous meanings in the business world. This can be compounded by not clearly defining the purpose of the advisory board in writing either through a board resolution or bylaws.
It is essential to make clear the distinction between your advisory board and your board of directors. This will allow you to avoid confusion when working with people who may not be legally permitted to serve as directors, like teachers who establish micro-schools or entrepreneurs with limited personal stakes. This is important as the legal board of directors will have responsibilities, risks and liabilities that an advisory board does not have.
A advisory board for the CEO and the management team is an advisory board. It gives them information and connections that they might not otherwise have. Typically, advisory boards are not shareholders or shareholders in the company, and do not have an interest in voting.
A advisory board, regardless of their expertise in specific fields is not given the authority or power to direct an organisation. This is because the management team and CEO are accountable for making decisions not the advisory board. Only if an advisory panel is granted formal board committee status with voting rights and insurance coverage for liability through Deeds of Indemnity and Directors and Officers Insurance can they have the power to guide the organisation.