Q: How is a Board of Advisors different from a Board of Directors?
A: The purpose of a board of advisors is to guide, counsel and advise a company’s CEO and management. Any distribution company can benefit from developing its own group of external advisors who are knowledgeable in the successful operation of distribution businesses. A board of advisors is particularly useful in providing fresh ideas and unique perspectives. An advisory board can also enhance an organization’s credibility with customers, suppliers and investors; and expand a company’s networking contacts.
A board of directors has a legally defined responsibility and is elected by the shareholders and governed by the corporation’s bylaws. Therefore, the distribution company’s ownership ability to create and expand its board of directors is restricted by law and corporate policy. Moreover, directors are elected for established terms and may be difficult to remove.
An advisory board, on the other hand, is an informal group of experts and advisors that the ownership of the company selects. The advisory board can easily be created, expanded or reduced in size to meet the needs of the organization.
The fiduciary duty of a board of directors requires it to place the needs of the company ahead of the needs of its management and employees. Conversely, a distributor’s board of advisors is focused on advising the CEO and management team for the benefit of the company.