Summary
- Having in place a sounding board of people to discuss your company can be invaluable.
- There are different structures – from the informal to formal – for gaining input about your business strategy and direction.
- Advisory boards and boards of directors are two options to consider putting in place.
Creating opportunities to discuss your company with a group of people whose perspectives you respect can be invaluable. But how do you identify the structure that makes the most sense?
For example, peer networking groups offer access to a brain trust of business knowledge and resources for exchanging ideas with people in similar roles as you. They often meet monthly, and provide a forum for testing ideas, learning from guest speakers and connecting over common business concerns.
Advisory boards and boards of directors also help business leaders set the directions for their companies and reinforce strategies underway.
- Businesses of all sizes can benefit from establishing either board structure.
- Advisors and board members often act as outside experts, adding a level of engagement and experience that management teams might otherwise not consider, and bring expertise to help make better informed business decisions.
- They can also be door openers to networks in the communities your business serves, including in such areas as recruiting, governance and succession planning.
Each type of board is designed differently. Understanding the difference between advisors and a formal board can make all the difference for your business.
What Is An Advisory Board?
An advisory board is generally a group of subject matter experts providing their skills and expertise to a leadership team.
- As the name implies, an advisory board works to offer advice to help organizations achieve their goals.
- Advisory board members can provide expertise to help solve business problems, inspire new ideas and share strategic advice.
- While they can play an important role in providing external perspectives and rationale to help guide a business decision, they do not have the ultimate say in a decision.
Advisory boards of specific experts can also be assembled to advise on certain business needs, such as the hiring of a new CEO, where they bring active networks for recruiting and making connections. Advisory boards can also be created for expertise as an organization navigates a particular situation, such as an acquisition where banking and finance experts can help a leadership team develop an effective acquisition plan.
How Is An Advisory Board Different From A Board Of Directors?
Advisory board members’ subject matter expertise can have significant impact on shaping an organization’s success and public perception. Advisors bring broader expertise and outside perspectives to support organizations, while boards of directors tend to have direct oversight into tactical operations and possess governing power.
What Is A Board Of Directors?
A board of directors tends to be:
- A group of elected individuals focused on driving business decision-making, upholding governance, and overseeing the operations and strategy of an organization.
- Board members typically consist of shareholders, investors and other key stakeholders that meet regularly to align on company policies, business guidance and decisions1.
For family-owned businesses:
- Often several family members may serve on a board.
- Developing a board with outside members can bring an objective, diverse perspective to the table and help separate family from business while helping with family business governance and succession planning2.
- Outside board members can provide guidance for younger generations and continuity in the business’ values, as established by the founders or prior generations.
How Is A Board Of Directors Structured?
A Board Chair typically works closely with the board of directors and company leadership, including the CEO who often reports to the Board Chair. Board members can bring different areas of expertise and varying levels of structures; speak with your banker, accountant and lawyer about a structure that may work best for your company.
How Is A Board Of Directors Different From An Advisory Board?
Publicly listed companies in the U.S. are required to have a board of directors and adhere to set guidelines to establish them. While private companies are not legally required to have a board of directors, they may still choose to implement one to bolster governance and objective input. Either way, members of a board usually consist of executive leaders from within an organization and external directors who provide objective perspectives.
Different Structures For Reaching Your Business Goals
No matter the size of your organization, and if it’s private, public, or family- or employee-owned, both advisory boards and boards of directors play important roles in supporting your organization’s strategy and direction. With the added expertise from advisory boards and strategic decision-making from a board of directors, your organization will have ongoing sources of opportunity to create, test and implement strategies and deliver success.
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The opinions expressed herein are those of the authors and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice. These views and opinions should not be construed as any specific recommendation. This material is for your private information and we are not soliciting any action based on it. The information in this content has been obtained from sources believed to be reliable but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information.
1Rixom, J. (2022, January 4). Mandating Diversity on the Board of Directors: Do Investors Feel That Gender Quotas Result in Tokenism or Added Value for Firms? Journal of Business Ethics. https://link.springer.com/article/10.1007/s10551-021-05030-9
2Moats, M. (2022, May 23). Why private company boards need outside directors. Harvard Law School. https://corpgov.law.harvard.edu/2022/05/23/private-company-boards-need-outside-directors/
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