Board of Advisors vs. Board of Directors (Differences and Benefits)

By Indeed Editorial Team

December 7, 2021

A board of advisors is a group of individuals that provides advice on how a company can operate more effectively. The board is an informal body responsible for helping an organization develop, implement, and supervise business strategies to improve management and fulfil specific tasks. Learning more about how a board can advocate for shareholder interests and contribute to policy decisions for a company can help you with strategic decisions in your career. In this article, we define an advisory board and a board of directors, review their differences, and explore how each can benefit a company.

What is a board of advisors?

A board of advisors is a group of professionals that provides advice on how business owners can better manage and operate their business. Advisors typically receive stock-based compensation and aren't financially or legally bound to the business or stakeholders. This type of board typically comprises a financial expert, a legal expert, a human resource manager, a marketing expert, and an accountant.

What is a board of directors?

A board of directors is an elected executive committee that represents shareholders at a company. Every public company has a board of directors that meets regularly to decide on hiring new personnel, discuss dividend policies and payouts, and review executive compensation. Company shareholders elect a board of directors to establish policies and strategic objectives.

Related: A Guide to Finance Careers

Board of advisors vs. board of directors

An advisory board differs from a board of directors in several ways, including:

Purpose

An advisory board is an informal group of individuals that advises business owners on how they can operate more effectively. These individuals have no legal responsibility for the company's administration. Advisors can help owners realize company goals, manage finances, establish a business plan, and explore investment opportunities. A board of directors is an executive committee that supervises company activities and directs affairs to meet the interest of shareholders and stakeholders. A board of directors can hire and terminate company personnel, create policies on dividends and payouts, secure resources, and set strategic financial goals for the company.

Roles and responsibilities

The main purpose of an advisory board is to levy expertise from outside the company to influence internal affairs. An effective advisory board can use its knowledge and strategic thinking to guide the company. Some roles and responsibilities of an advisory board include:

  • Using business and marketing acuity to help make financial decisions for the company

  • Counselling business owners on issues with management and staff productivity

  • Giving advice on how to improve social networking

  • Suggesting business technology, such as timesheet systems and apps, to improve communication and organization

  • Developing a sustainable business that prioritizes the financial growth of the company

The responsibilities of a board of directors can vary depending on the business. The board of directors appoints one person as the chief executive officer to monitor business performance and develop and implement a business strategy. Some roles and responsibilities for a board of directors include:

  • Establishing company objectives by assessing and revising current policies, such as disciplinary action or workplace health and safety, to increase productivity

  • Reviewing the performance of leadership and company owners and terminating or hiring new personnel

  • Seeking and ensuring the availability of financial resources

  • Approving budgets to enable businesses to spend money wisely and setting realistic boundaries for spending

  • Adjusting salaries, compensation, and benefits for employees and management

Related: What is a Code of Conduct (Definition and Examples)

Bylaws and formality

Advisory boards are informal. Members of the board don't adhere to strict legal guidelines, which means they have greater flexibility in determining the focus of the committee. There are no liabilities associated with taking the advice of an advisor, which means business owners use their discretion to take their suggestions. Bylaws don't require advisory boards to meet at specific intervals or frequencies, making board procedures a collaborative and subjective process for members of the committee and company.

A board of directors is formed based on the bylaws of the corporation. Bylaws and rules of a corporation also determine how much authority a board has over the company. Managers of a company have the freedom to remove and add members to the board in most situations. The board of directors typically votes and decides on a company's bylaws after they're elected. For example, some provisions that a board of directors might decide to include in the bylaws are weekly shareholder meetings and how the corporation communicates with shareholders.

Board members

Here's a list of members included on both types of boards:

Who is on the advisory board?

Business owners may choose certain board members depending on the needs of the company. For example, if an owner's primary concern is financing, more financial experts may collaborate with the committee. Here are the common members included on this board:

  • Legal expert. Business owners may add a legal professional to the advisory board to assist with and manage legal matters. Legal experts may be lawyers or attorneys that assess and revise contracts and examine copyright material or patents.

  • Accountant. Business owners may recruit an accountant to review a business's financial statements and accounting books for accuracy. Accountants can keep track of sales, liabilities, assets, and cash flow.

  • Financial manager. A financial manager can assist businesses in coordinating activities relating to budget planning and financial reporting. A financial expert can also help businesses develop a model for sustainable income growth, such as an ad-based revenue model that focuses on marketing plans.

  • Human resource manager. Human resource managers handle the administrative functions of a business or organization. Managers have the authority to recruit new staff and serve as a liaison between departments.

  • Medical professional. A healthcare institution may hire a medical professional, like a physician or nurse, to serve on its advisory board to ensure quality care for patients. These professionals may advocate for improving patient-related services and recommend training opportunities for new personnel to learn about industry trends and research.

Read more: How to Begin Your Career in Human Resources

Who is on the board of directors?

Members of a board of directors are inside directors or outside directors. The organization employs inside directors to represent the interests of stakeholders. Outside directors are members of the board that don't represent stakeholders or have employment by the organization. Here are some of the common titles on a board of directors:

  • Chief Executive Officer (CEO). A chief executive officer's job is to manage an organization. The board of directors sets responsibilities for the CEO, which may include determining business strategies, enforcing policies, and reporting the status of operations to managers and other board members.

  • Corporate Secretary. The corporate secretary assists CEOs and managers with maintaining compliance in legal and regulatory matters while communicating information to shareholders. Secretaries also prepare minutes of board actions during meetings and consult between the board and managers.

  • Corporate Treasurer. Corporate treasurers evaluate financial risks in order to protect a company's value. Treasurers can also maintain company compliance with financial regulations, establish an annual budget, and assess financial progress.

  • Other company-specific directors. Depending on the company's industry, the board may also have members with expertise in medical services, public relations, or fundraising.

Read more: What is the Difference Between a CEO vs. a CFO? (With FAQs)

Compensation

The national average salary for a member of the board of directors is $59,806 per year. Companies rarely compensate insider directors for participating on the board, as they are often a shareholder, a stakeholder, or an executive. A member of the advisory board gets compensated in the form of stock options, but some companies may offer board members a pay incentive depending on their experience and expertise. Salaries depend on the stage of the startup in new companies and the nature or extent of the service.

How each board benefits a company

The benefits of an advisory board include:

  • Increased organization of management and greater accountability among staff

  • Higher efficiency and control of complex operational goals

  • Enhanced risk mitigation

  • Formal advice from experts to compensate for lack of understanding of certain business functions

  • Less pressure on executives to deliver on promises and make assertive decisions

  • Input about changes in policy or financial matters

  • Improved strategic planning

  • Networking connections to other organizations and professionals

The benefits of a board of directors include:

  • Increased diverse skills and knowledge from professionals to create a more dynamic environment

  • Improved planning for financial decisions and operational changes

  • Reliable and ethical decision-making practices

  • Safeguarded shareholder interests

  • Increased cost-efficient options for business developments

  • Improved company reputation for high standards of practice

  • Increased awareness of current market and technological trends

  • Improved compliance with local, provincial, federal, and industry regulatory boards

Salary figures reflect data listed on Indeed Salaries at time of writing. Salaries‌ ‌may‌ ‌‌vary‌‌ ‌depending‌ ‌on‌ ‌the‌ ‌hiring‌ ‌organization‌ ‌and‌ ‌a‌ ‌candidate's‌ ‌experience,‌ ‌academic‌ background‌, ‌and‌ ‌location.‌