Part 2: Advisory Boards are not ‘The Board’ In Part 1 we advised that Advisory Boards (AB) should ultimately be problem-solving bodies, whereas the Board of Directors or Governance Board (The Board) is about governance, oversight, and decision-making. When there isn’t clarity about what The Board should be doing, and what is best left for Advisory Boards, the results can be disappointing, and opportunities for enhanced performance can be missed.
There are important differences between the two.
• The Board is elected by shareholders, while an AB is appointed by the organisation.
• The Board has a fiduciary responsibility to the company and stakeholders, whereas the latter is focused on delivering according to the AB’s charter, and there can be significant flexibility in what that charter says.
• Responsibilities of The Board are financial performance, risk management, strategic direction, and governance; whereas those of an AB can be any area for which they are appointed.
• Decisions made by The Board are binding on management, whereas the AB is more about informing, supporting, and brainstorming to empower management to make their own best decisions.
• There are legal obligations for The Board of Directors such as meeting on a regular schedule and having a fixed agenda. An AB, depending on its objectives, can meet as often as required, with total flexibility in its meeting agenda.
The differences in approach between the two can be illustrated using environmental, social and governance (ESG) policies as an example. The Board might look to ensure compliance with regulations; approve policies and procedures; assess risks; and oversee implementation. In contrast, an AB might be appointed to understand market practices; innovate ideas; road-test concepts; and support management’s ultimate proposals to The Board for authorisation.
Furthermore, the specialised areas on which The Board is now required to make informed decisions are steadily growing. Cybersecurity, Covid-19 containment, and ESG policy, to name a few, are good examples of new, complex areas that are falling to The Board to address. Formulating relevant strategies and making good decisions requires specialised knowledge and great consideration which increases the burden on The Board. Many companies are finding that shifting some of the thinking and strategizing for these areas onto an Advisory Board helps free up The Board to focus on those areas and topics where they can (and indeed must) be more decisive and impactful.
Written by Jonathan Watkin & Greg Solomon
Related Content: Part1: What is an Advisory Board?