Ask the Expert

Board of Directors vs. Advisory Board

Board of Directors vs. Advisory Board
Image credit: Shutterstock

Building a trusted group of advisors is an incredibly important part of building your business. I would suggest you create two different boards. One will be an advisory board, I like to call the honorary advisory committee (HAC), and the second is your official legal board of directors (BOD). 

Here is a breakdown of each board and the best way to utilize it.

Honorary advisory committee

The HAC team is much easier and quicker to assemble. It does not have a legal tethering like a board of directors does, and as such it is a lower risk way to attract super qualified candidates that will help to enhance and accelerate your business. 

Related: 5 Tips for Forming an Advisory Board

Look for people that complement your own skill sets, who would bring different areas of expertise: marketing, sales, operations, finance, human resources or technology. Ideally you would meet with this group three to four times per year for one-two hours. Usually these meetings are on a conference call, yet in person if possible is significantly more powerful. 

The HAC members will help you because they either like you or they like the business that you are building. Most of the time you can find volunteers to sit on your HAC and you can compensate them with dinner, drinks and gratitude. The whole idea of the HAC is to keep it light and informal with little drama. Keep it big picture and strategic. Make it both interesting and engaging. 

Board of directors

A board of directors is composed of members that are legally bound to the business and thus they have a potential liability associated with being part of that board. Therefore it is a more serious engagement. Before looking for board members, I would suggest you buy a board of directors liability insurance policy to protect against any potential downstream legal ramifications associated with board of directors membership.

Related: 10 Tips for Forming a Board of Directors

Like the HAC, choose members with more experience than you and people that complement your skills and fill in your weaknesses. Most importantly, try to choose people who do not have a vested interest in the company. In other words, it is best to select Independent board members instead of appointing existing shareholders, investors or venture capitalists. The ideal candidate would be most interested in the betterment of your business and have a duty to the business rather than a personal vested interest in protecting their individual shareholdings in your business. 

Look for one- to two-year commitments, that way you can continue to adjust and optimize the board composition as needed, as you gain momentum. You should compensate the board members with dollars or stock options for their time. The board should meet four to six times per year to review overall strategy and to approve the company direction and budgets. It is not the job of the board to run the company and don’t allow this to happen. A strong or unsupportive board or a weak or new entrepreneur can fall into a board micro-management situation which is not advantageous for the business or for the people involved. 

Related: Advisory Board 101: How to Get Advisors to Say Yes

Preparation for board meetings

Be prepared for the HAC and board meetings by sending out a detailed agenda four to five days in advance. The agenda should have all of the relevant information required to give good input and advice on and should detail the areas that you need help and input.