Should I be part of an Advisory Board?

As an individual with previous business experience, you may want to join an advisory board to advise and guide other businesses. This experience is often very broad and versed in dealing with various issues. To establish whether you should join an advisory board, you must first understand its purpose and role. This article will outline what an advisory board is, its necessity and whether you should be a part of it.

What is an Advisory Board?

Advisory boards are informal bodies that provide non-binding advice and guidance to company management. Their purpose is to assist a company with achieving its business aims, navigating challenges, and providing outside-the-box perspectives and solutions. They serve a company in addition to a traditional board of directors. Some advantages can include, but are not limited to:

• they are less formal than traditional boards;
• they can be cheaper to run than traditional boards;
• their advice and recommendations are not binding;
• the directors and shareholders of the business can retain full control;
• they can offer unbiased insight since they are not part of the day-to-day operations of the company;
• they can bring expertise from other sectors; and
• they are a good way for businesses to consider people for management positions.

Often, startups and smaller businesses will have a very small traditional board (usually just the founders). They will then use the advisory board for advice and guidance. However, the traditional board will still retain control over the day-to-day decisions in accordance with the company’s articles of association and shareholders agreement. 

Key differences between an advisory board and a traditional board

One key distinction is that traditional board members usually sit for a term in office. This is not always a requirement for advisory board members. Directors may receive a salary or be employed by the company, whereas advisory board members generally do not, although they may receive a monthly fee for their time.  Some companies may also pay the advisor for expenses arising from the undertaking of their duties, or they may also offer shares in the company in exchange for their time. Advisory board members are not involved in the company’s day-to-day management. However, they may provide advice on financial or operational points if called upon by the directors.

Advantages of joining an advisory board

One of the primary advantages of being part of an advisory board is the opportunity for professional growth and development. As an advisory board member, you gain exposure to new industries, business models, and challenges that may differ from your primary area of expertise. This exposure can broaden your perspectives, expand your knowledge, and enhance your problem-solving skills.

Joining an advisory board also offers valuable networking and relationship-building opportunities. You may have the chance to interact with industry leaders, influential stakeholders, and potential business partners. This can lead to expanding your professional network, increasing visibility, and establishing valuable connections that may benefit your career or business ventures in the future.

Disadvantages of joining an advisory board

Joining an advisory board can be a significant time commitment. Advisory board members are typically expected to attend regular meetings, prepare for discussions, and potentially contribute to additional projects or initiatives. This can place significant demands on your time and may conflict with your work or personal obligations.

Another consideration is the potential for conflicts of interest. As an advisory board member, you may have access to sensitive or confidential information about the company’s operations, strategies, or future plans. It’s crucial to ensure that your involvement does not create conflicts with your current employment or business interests and that you maintain strict confidentiality and avoid disclosing sensitive information. Most companies will likely require all advisory board members to sign non-disclosure agreements. Signing a non-disclosure agreement exposes you to liability if you unlawfully share confidential information. If you are considering joining an advisory board, you should consider the impact confidentiality restrictions will have on you and your other commitments and interests.

Requirements of joining an advisory board

The requirements to join an advisory board will depend on the company’s specific needs. Often, companies want someone with extensive experience in a particular industry, such as human resources, law, finance, or technology. Companies may also want to recruit people with expertise in their industry; however, they must consider potential conflicts of interest and whether prospective advisory board members work for direct or potential future competitors.

There are several advantages to a company having an advisory board which is a great opportunity for advisory board members to develop and expand their network. However, advisory board members will likely be required to sign a confidentiality agreement and may be required to invest significant amounts of time into the position without pay. It is key that both companies and advisory board members ensure that there are no conflicts of interest, as this could lead to a dispute. 

Key Takeaway

An advisory board provides non-binding advice and guidance to a company, offering expertise and insights without the formal responsibilities of a traditional board. Startups and smaller businesses often use them to complement a small board of directors. 

While advisory board members can gain professional growth and networking opportunities, the role may require significant time commitment and careful management of potential conflicts of interest. Unlike traditional board members, advisory board members are not involved in day-to-day management and typically do not receive a salary, though they may receive a fee or shares.

If you have further questions, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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