What Is An Advisory Board? Is It For You?

July 13th, 2010

This blog is provided by Jonathan Bell from Bell & Associates.   Jonathan acts for a number of firms both in the role of Advisory Board Member and also Independent Director.   If you wish to contact Jonathan you may reach him on (06)877 3935 or [email protected]

Have you ever wondered whether the decisions you are making are the best for your business?  If these are the sort of questions you are asking yourself, then perhaps you should be considering an Advisory Board for your business.  The Advisory Board model has been developed as a way of ensuring businesses have access to independent skills such as governance, strategy and business best practice.

Advisory boards and boards of directors can play a significant role in creating value for firms in New Zealand.  The two things they have in common are the word ‘board’ and the interests of the company at heart.  Apart from these, they are fundamentally different.

The board of directors

  • Has a fiduciary responsibility to act in the best interests of the company
  • Is appointed by shareholders
  • Must manage or direct the business and affairs of a company (the ‘board’ may be a sole director registered under the Companies Act 1993)
  • Has all the powers necessary for managing, directing or supervising the company
  • Is liable for its actions
  • May direct management

The Advisory Board

  • Has a primary role of advising
  • Has no power of veto and cannot direct or instruct management
  • Is not a management committee since its members are typically external advisers who are there to bring fresh and objective perspectives
  • Is generally appointed by the managing director/owner of CEO to whom it is accountable

Members of advisory boards must be careful not to put themselves in a position where under the Companies Act 1993 they may be deemed as directors and consequently be liable for any liabilities or actions made against the company, particularly third parties.  So, to preserve the independence of an advisory board, formal directors and managers should not be members, nor should advisory board members become shareholders.

Why an advisory board and not a board of directors?

Advisory boards are useful where business owners are unwilling to relinquish control.  As an advisory board member you have to be prepared to have your advice ignored.  They are a mechanism for a managing director to gain confidence in working with a ‘board’ and access a range of strategic and operational advice on a long-term basis.  They can be a preliminary to a formal board of directors but are not a prerequisite.  The usefulness of an advisory board depends on a company’s particular circumstances.

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