An advisory board and an executive board often look very similar. Both have regular meetings in which important company matters are discussed. Both are composed of important and senior stakeholders. And, both have direct access to the chief executive. However, the similarities end there. An advisory board and an executive board are very different when it comes to matters of governance, liability, accountability and power.
A public company must have a formal executive board, also known as a board of directors. Laws spell out the role of the board, what it does, and how members are elected, removed and compensated. An advisory board is an informal body that is created by or on behalf of the chief executive. Companies do not have to have an advisory board and, when they do, the role is determined by the chief executive. Members of the advisory board can be more or less involved in the company, depending on the changing needs of the chief executive and the management team.
Members of the executive board are accountable to the stockholders for the performance of the company. In the case of an executive board of a not-for-profit organization, they are responsible to the organization's stakeholders. They select and appoint the chief executive, approve the budget, sign off on the annual report, and carry out fiduciary duties. An advisory board is accountable only to the chief executive and management team. Members have no responsibility for the performance of the company, just for the quality of advice they give, which the chief executive may or may not take.
A board of directors has a legal duty to act in the interests of the company. If they do not, or mistakes are made, the directors are legally liable. Advisory boards have no legal liability for the advice they give. Although, technically, they could be sued by the company for providing bad advice, this situation is very rare. If the company runs into trouble that stems from advisory board suggestions, the executives who took the advice -- not the advisory board members -- would be held liable.
The executive board represents the interests of the organization and its stockholders. This gives it enormous power and responsibility. It approves or challenges strategic decisions and has the power to remove the chief executive and other senior executives. An advisory board provides advice and ideas, which members of the management team are free to disregard. It makes no decisions, as all decisions are made by the management team.
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