Updated July 13, 2023
Definition of Board of Advisors
The term “Board of Advisors” refers to a group of business professionals responsible for helping promoters or business owners run the company better. This type of board is usually informal, and hence the business owners can structure it in a way they deem necessary and supportive of the business.
Typically, this board member is offered stock-based compensation, so they gain from an increased business valuation. It is also popularly known as Advisory Board, Advisory Panel, Steering Committee, Think Tank, etc.
Purpose
The primary purpose of the Board of Advisors is to help the organization solve business problems, gain innovative market insights and explore new opportunities through thought-provoking and high-quality discussions. It is important to note that the role of a Board of Advisors is not to make decisions but rather to offer specialized business intelligence and assist the company’s decision-makers. This type of board is usually flexible, and the members’ scope, terms of reference, and roles can be determined based on the business requirements.
Example
A typical Board of Advisors comprises a finance expert, a legal expert, a marketing advisor, a human resource manager, and an accountant. Each helps manage a specific aspect of the business and provides insights on upcoming business trends on their domain expertise.
Roles and Responsibilities of the Board of Advisors
The roles and responsibilities are as follows:
- Help the organization understand the business, the market, and the ongoing industry trends.
- Advice on the issues raised by the business owners or the management.
- They offer unbiased insights from the perspective of a third person not involved in the day-to-day business operations.
- Encourage the owners to explore new business opportunities.
- Closely monitor the business performance and challenge the owners and management to improve the business.
- Persuade the management to develop a robust governance framework that would drive the organization’s sustainable growth.
Importance
The importance is directly proportional to the size of a business. As an entity grows, it faces more daily issues, requiring increased attention to sustain its growth. It helps the management overcome professional hiccups by providing expert opinions on various business issues. Essentially, the board plays a vital role in the company’s growth story as it helps the organization maximize its profit and wealth.
Board of Advisors vs Board of Directors
Although both Board of Advisors and the Board of Directors assist an organization in running the business efficiently and productively, there are certain differences between the two that have been discussed below:
- The members of the Board of Advisors are chosen informally, while the members of the Board of Directors are instated using an election. Thus, the Board of Advisors is personally chosen by the business owner. On the other hand, the Board of Directors represents the company and its stockholders.
- Compared to the Board of Advisors, the role of the Board of Directors is relatively more difficult, and they handle more responsibilities too. Given their accountability to the stockholders, the Board of Directors must be more careful with its advice or suggestions.
- The Board of Advisors does not have any voting rights, while the Board of Directors is responsible for the decisions made by the organization.
- The suggestions the Board of Advisors put forward may or may not be realized. At the same time, the Board of Directors has the authority to mandate major organizational changes and steer the company’s future in a particular direction.
- Each member of a Board of Advisors is an expert in his/ her field, and they help the Board of Directors better understand the ongoing business situations.
- The members of the Board of Advisors receive stock-based compensation, while the Board of Directors receives fat paychecks. The former’s compensation depends on the company valuation, while the latter gets a huge salary, lavish allowances, and a fee for attending each board meeting.
Benefits
Some of the major benefits are as follows:
- It helps in increasing the stakeholder’s confidence in the business.
- With their deep industry expertise, Board of Advisors members offer expert opinions on new business opportunities and expansion projects.
- It increases goodwill and improves the organization’s brand image within the industry.
- It studies current market trends, competitors’ market positions, etc., and offers suggestions for wealth maximization of the stockholders.
Key Takeaways
Some of the key takeaways of the article are:
- It is a group of business professionals who help business owners run the company better.
- The business owners form it informally and have the flexibility to build it as per the business requirements.
- It helps solve business problems, offers innovative market insights, and assists in exploring new business opportunities.
- The need for this increases as the size of the business increases.
- It is not the company’s decision-maker, but it certainly eases off the burden of the actual decision-makers.
Conclusion
So, it can be seen that it is essential for every organization to have a Board of Advisors that can provide expert opinions on various issues so that the company can manage the business efficiently and continue to grow its market share. Effectively, it eases off the burden on the Board of Directors.
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This is a guide to the Board of Advisors. Here we discuss the definition, Roles, and Responsibilities of the Board of Advisors, along with its Benefits. You may also have a look at the following articles to learn more –
