The popularity of Advisory Boards is still on the rise.
But what does it actually mean for you to join an advisory board, and how does it differ from joining a traditional board of directors in a company?
And from the owner/founder perspective – do you need both, and who goes where?
I get the question from many high-in-demand business persons, as well as from founders, so let’s make a short overview.
There is a CLEAR difference between saying yes to an advisory and a formal board position:
· The advisory board is not a legal concept regulated by law.
· The formal board of directors is on the other hand a legal concept and comes with significant LEGAL OBLIGATIONS, but also POWERS over the company.
And both the advisory board and the formal board of directors can fill important roles for a start-up. Even able to provide synergistic effects for each other and the management. They will be key players when building the company’s good governance structure.
Let’s not forget – good governance is fun and meaningful and gives the business strength and a solid foundation beyond what it could muster up otherwise.
The advisory board is nice to have. More like a mentor and support system, a well-composed advisory board can provide guidance and open doors leading to greater success for any company. The function is what the company chooses it to be, most typically to support and advise in specific areas.
Perfect for start-ups needing guidance when they have a lean organization that does not yet have all necessary competencies, or that has not yet built up its network or track record. The position is as a rule an honorary assignment that is not remunerated. Often it will be persons with more senior experience in the business area that the company is focusing on.
Since there are no direct legal obligations, the company’s founders/owners can be more relaxed when asking someone to join. And the persons being asked can be more generous as regards saying yes compared with a formal board position.
Check out the Forbes check-list style article, made by and for founders seeking to establish a meaningful advisory board.
The advisory board can furthermore be a perfect test venue also for finding out who shows the right competence and engagement for being nominated for a proper board position.
A formal board of directors’ position on the other hand is a so-called fiduciary assignment that means that you as a director accept significant legal obligations.
This includes that you must be sure to have sufficient in-depth knowledge of the company’s business and finances as well as about what decisions and supervision the law requires of you. You hence take a responsibility for the company being sound and answer to the shareholders.
You will also appoint the CEO, you need to stay on top of the company’s liquidity, and the board is responsible for ensuring the overall implementation of regulatory requirements. While you can delegate tasks you cannot delegate the ultimate responsibility.
Summary: If you are contemplating saying yes to a formal board position you should ask yourself if you know the company well enough and if you have the time and commitment needed so that you are ready for the obligations that a board position brings. For an advisory board position, you should in particular see what the company/founders expect from you and if you feel that you can and want to deliver on that.
To be appointed, or to appoint someone, to an advisory or a formal board position, is an important decision for the company. And for you being asked, it should always be seen as an honor and a recognition.