“If you change the way you look at things, the things you look at change.”
More often than not, business owners simply assume that the legal side of their business is rolling along marvelously. Yet, there are several areas that typically need attention—not just good old intentions. Legal issues warrant your time and focus because they can make or break your endeavor. When you take informed steps to protect your business, you concurrently increase its value.
Most proprietors rely on outside professionals such as attorneys and accountants for advice to help run businesses and to enhance the value of what they are building. Regular counsel from an independent, highly experienced advisor has undeniable business benefits. Depending on a variety of factors, it might make sense to establish a board of directors or a board of advisors. Ideally, your board will provide insight into trends, make strategic introductions, and increase your accountability and that of your top managers. So, what are the differences between these two types of boards?
The Board of Directors
- How Many: There is often an odd number (five or seven people) to help with voting.
- Who They Are: They have no business ties to the company, and are chosen based on their experience in the industry, a special skillset or expertise, or their ability to provide useful deliverables.
- Their Focus: They manage the CEO and formally approve all key company decisions. They support the company’s vision and protect the interests of the organization and its shareholders.
- Their Compensation: They are typically paid to attend meetings and reimbursed for travel expenses.
- Their Liability: They have a legal duty to the company and can be found liable if mistakes are made. Insurance is necessary.
A Board of Advisors has a less formal structure than a Board of Directors
- How Many: As many people as necessary to achieve goals and help grow the business.
- Who They Are: Generally they are mentors with specific industry knowledge. They possess specific skills that are missing in the organization.
- Their Focus: Priority is advising and assisting the CEO and top managers.
- Their Compensation: They typically receive lower compensation for attending meetings than do a Board of Directors.
- Their Liability: With limited exceptions, they cannot be held liable for mistakes; therefore, insurance is unnecessary.
When you are ready to discuss the possibility of forming a board to assist with the growth of your business, I am available to help you identify the gaps in your management team’s knowledge and experience, and to help you weigh the differences between a BOA and a BOD for your particular situation.