The biggest thing to remember is that a board of directors has a fiduciary responsibility, an absolute legal obligation, to act in the best interest of shareholders while overseeing the organization and its management. If necessary, the board of directors can, and will, replace the CEO.
An advisory board, on the other hand, is a consulting body that may be created, maintained or disbanded at the discretion of the CEO or a delegate. Advisory board members do not have the power to veto, the power to instruct executives or the power to direct the organization. An advisory board works for the CEO or a delegate.
Here are a few considerations when it comes to recruiting members, constructing boards, selecting board chairs, board size, control mechanisms, etc. As a general theme, focus on quality, not quantity.
- If you don’t need one, you might not want one. If the laws that govern your business don’t require you to have a board of directors, you might not want one. Similarly, if there is a facet of your business that doesn’t warrant an advisory board, you might not want one. Weigh the strengths and weaknesses and determine what is right for your unique circumstances.
- Limit the number of directors or advisors on each board. 3 to 5 high quality directors or advisors will provide far more value than 10 to 12 average directors or advisors. A general consensus (gathered from a number of different people, with slight variations in phrasing) is, “If two people on a board always agree with each other, one of them is unnecessary.
- Directors are structured by functional committees while advisors can be structured by geography, industry, expertise, etc. The board of directors will have an audit committee, a nominating committee and a compensation committee. Advisory boards may be structured as the Asia-Pac Advisory Board, EMEA Advisory Board, Government Services Advisory Board, Financial Services Advisory Board, Enterprise Technology Advisory Board, Service Provider Technology Board, Consumer Technology Advisory Board, etc.
- Choose your board chairs carefully. The performance of each committee on the board of directors and of each advisory board will likely reflect the drive, determination, commitment and performance of their respective chairs. In the case of advisory boards, a strong executive that chairs their respective board can be very beneficial. For example, a CTO would chair a technical advisory board.
- Seek targeted expertise. The board of directors will eventually need a member on the audit committee that is a “financial expert.” Advisory board members typically help to fill in gaps in knowledge, help break into new markets, help break into new industries, etc.
- Recruit the highest quality directors and advisors that you can – aim high! Focus on directors or advisors that enhance your credibility while also having passion, desire, drive, experience and the will to act. They don’t have to be industry celebrities. In many cases, a very hungry, extraordinarily bright and known up-and-comer with something to prove might be your best bet.
- Use automated controls. Limit the number of outside obligations each advisor can have, implement pro forma resignations for specified events, make ongoing membership contingent on performance, stagger board terms and utilize re-election processes.
- Advisory boards may also be called advisory councils or advisory committees. Here, the choice of name may help or hinder the recruitment process. In our experience, more senior candidates want to be “on a board” while mid-level candidates don’t mind being “on a council” or “on a committee.”
As an early stage startup, your initial advisors will likely be informal or represented by the members of your board of directors. Make sure you have a strong independent advisor who ideally has experience with products or services similar to yours, as well as your initial target market. As the company grows and expands, additional advisors or advisory boards may be necessary.