Advisory Boards are Not Boards of Directors

Board of Directors versus Advisory BoardPeople regularly confuse Advisory Boards with Boards of Directors.  But the two are very different animals.

One of the biggest differences is that Advisory Boards typically have no power within the company.  They are informal panels there to advise the owner and management.  That’s it.

Boards of Directors, on the other hand, may have considerable authority and power.  Their power is defined by law and by corporate governance documents.  Under the right  circumstances (or wrong circumstances, depending how you look at it) they could even oust the company founder.  Wouldn’t that be a rude surprise!

I participated in the Fortune Small Business Ask the Expert blog on this topic:

“An advisory board … exists only to offer ideas to the business owner.”

If you really need a team to vote on corporate decisions, then a board of directors would make sense, says Campbell. But understand that this is not a small commitment. “If the advisory board is not working out, you can simply discontinue it or bring in new advisors,” says Campbell. “It may be extremely difficult to get rid of a board of directors if you change your mind about having one later on. Under certain conditions, the directors can fire management or bring in new leadership, not the other way around.”

Let me state it even more strongly than the Ask the Expert article. 

A Board of Directors is about governing your company. An Advisory Board is about getting advice.

If you do not currently have a formal Board of Directors, do not establish one unless you have a compelling reason to involve others in running your company and you’ve consulted your attorney first. You could be giving up the power to control your own company, without realizing it.

If your goal is simply to get guidance from experienced mentors and industry insiders, set up a less-formal Advisory Board instead.  That way you get the advice you need without complicating the issue of who controls your company.

Read more in an article about advisory boards for small businesses that I wrote entitled “Advisory Boards: Seven Great Reasons to Have One.”

(Please note that this article refers to Board terminology and practices in the United States, and not necessarily other countries.)

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.