Board of Advisors

Definition of Board of Advisors

The term “Board of Advisors” refers to a group of business professionals who are responsible for helping promoters or business owners run the company in a better way. This type of board is usually informal in nature, and hence the business owners can structure it in a way that they deem necessary and supportive to the business. Typically, the members of this type of board are offered stock-based compensation, and 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 to be noted that the role of a Board of Advisors is not to make decisions but rather to offer specialized business intelligence and help the decision-makers of the company. This type of board is usually of flexible nature, and the scope, terms of reference, and roles of the members 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 Board of Advisors

The roles and responsibilities of a typical Board of Advisors 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.
• Offer unbiased insights from the perspective of a third person who is 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 with the objective to improve the business.
• Persuade the management to develop a robust governance framework that would drive the sustainable growth of the organization.

Importance

The importance is directly proportional to the size of a business. The reason is that the bigger an entity gets, the more issues it needs to handle on a daily basis in order to continue its growth, and hence it requires more attention. Basically, 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 Board of Directors assist an organization run 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 by means of 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.
• As 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 needs to be more careful with its advice or suggestions.
• The Board of Advisors doesn’t enjoy any voting rights, while the Board of Directors is responsible for the decisions made by the organization.
• The suggestions put forward by the Board of Advisors may or may not be realized, while 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 own field, and they help the Board of Directors better understand the ongoing business situations at hand.
• 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 of Board of Advisors

Some of the major benefits are as follows:

• It helps in increasing the stakeholder’s confidence in the business.
• Given their deep industry expertise, the members of the Board of Advisors are able to offer expert opinions on new business opportunities, such as fresh proposals, expansion projects, etc.
• It increases goodwill and improves the brand image of the organization within the industry.
• It studies current market trends, competitors’ market position, etc., and offers suggestions with the objective of 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 in a better way.
• It is formed informally, and the business owners have the flexibility to build it as per the business requirements.
• It helps in solving 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 decision-maker of the company, 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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