It is not uncommon for people to confuse the difference between an advisory board and a board of directors particularly if they are not knowledgeable about it. The confusion could be due to the usage of common terms (referring to both as “the board”) as well as the absence of a precise, documented explanation about the role of the advisory board as defined in the company’s bylaws and a different degree of fiduciary obligation.
A board of directors is the control body of an organization and has the power to take a vote on major decisions, including replacing the CEO or making changes in the executive management team. It is also able to hold management accountable for its actions. Board members are legally bound by a fiduciary obligation to the company, and could be held accountable for their actions if they do not meet this standard.
Advisory boards, on other hand, provide guidance to businesses and their leadership. They may also recommend specific changes or initiatives but ultimately it’s the business’s management whether or not to follow the recommendations of the advisory board.
A typical advisory board consists of third parties who are experienced and have extensive industry expertise. People who serve as advisors can help businesses stay up to date with trends and make suggestions that assist the company grow. It can be as simple and easy as streamlining customer service based upon the latest buying habits or as complicated as the creation of a new global growth strategy.