You may have heard the term “advisory board” versus “board of directors”. These two terms have several commonalities, but they also differ in several important ways. A board of directors is usually an individual or individuals hired by a company to assist in the management of that company.
A board of directors provides a link between the CEO and the other key players in the company. Often the chairperson of a board of directors serves as the company’s CEO. Generally speaking, a company can have one or more boards of directors, each performing a vital role.
It is the duty of the CEO to see that all of the board members are doing their jobs. This means that the CEO must be involved in every meeting and session of every board meeting. The company must be well informed about all of the company’s activities.
The board, on the other hand, does not actually meet at the same times or dates that the CEO is available. The meetings of the board are generally informal and occur when the CEO needs to obtain additional information or to speak with key personnel or key stakeholders.
One key difference between a company’s board of directors and its advisory board is the fiduciary relationship. As a general rule, a company’s board members are expected to perform the same level of fiduciary duties as would be expected of any other professional or financial advisor.
The difference, however, comes with respect to conflicts of interest. In the case of a small company, the board of directors will likely need to hire an outside legal firm to conduct background checks and to review any documentation regarding the company’s business practices.
This could include anything from a thorough investigation into price cuts and increases, to an evaluation of the company’s accounting practices. In a large corporation, it is entirely possible for multiple directors to be interested in aligning with the CEO on any number of different issues.
For instance, a popular board member may have a stake in a new venture that competes with an already successful company. If you want to furthermore deepen your understanding about Advisory Board vs Board of Directors, please do hop to this essential guide on the link.
This represents a conflict of interest since the company’s board generally spends its time deliberating matters such as how to remain competitive in the marketplace, rather than considering how to best maximize profits for the company’s shareholders.
In addition to potential conflicts of interest, there may also be a situation where one or more of the directors is financially attached to the company. That is, a director might have a stake in the company’s profits because they are making a decision based upon personal profits.
These types of conflicts are often referred to as “in the equity” and can often lead to conflicts of interest. To protect against such situations, there must be an effort to create an independent viewpoint, with a minority opinion, by the board.
A company’s CPA can also serve as an independent viewpoint, assisting the CEO and the board to arrive at a justifiable compensation decision. Another potential problem is the cozy relationship between a company’s CEO and its CFO, which has developed over the years.
At one point, the CFO was on the payroll of the CEO and took part in making business decisions. While this relationship is sometimes beneficial to the CEO and the company, it can also result in conflicts of interest. If the company develops a very successful venture, the CFO may feel entitled to a larger paycheck and will put pressure on the CEO to give him a raise.
In the worst-case scenario, the CEO may ignore the advice of his CFO and hand the company over to the CPA, who will then recommend that the company obtain a bank loan to fund the venture.
In addition to conflicts of interest, a board of directors also faces other problems, including age, and personality, ties to other business interests, conflicts of interest concerning industry associations, and travel expenses.
The average board of directors will spend about forty hours of time annually working. The average board of directors will probably also incur travel expenses for meetings outside their normal area of employment. They may also receive stock options and other incentives to serve on a certain board.
If you are considering a company’s board of directors, or if you have firsthand experience with them, you should take the time to study their professional history.
When evaluating directors on a business board, there are many factors to consider, such as experience, business skill, business background and expertise, and personal interests. Consider the opinions that you have received from these individuals regarding specific issues.
You should also ask them if they are willing to take a risk with your company by stepping out on their own to start a new business. The majority of business professionals would agree that being an entrepreneur brings opportunities. The only thing holding people back is whether they can be successful.