The Art of The Board: Directors, Advisors and People Who Eat Your Donuts

by Ed Schuth for The Up Start Forum, December 15th, 2010.

A strong, high-quality board can be a CEO’s greatest asset.  Whether in the form of a board of directors or board of advisors, the expertise, diversity of perspective and other resources that top quality board members bring to a company can create enormous shareholder value as the members work with the senior management team to evaluate, develop and guide the execution of strategic plans.

Directors v. Advisors.

The main difference between a Board of Directors and a Board of Advisors stems from the legal and fiduciary duties imposed upon the members.  Corporations are legally required to have a board of directors, which is responsible for the overall exercise of corporate power and the oversight of management.  Board members also have significant fiduciary duties to the stockholders, which, primarily in larger companies, translate to risk of shareholder lawsuits.  As a result, for many smaller or emerging companies, a board of advisors may be an attractive alternative.  Boards of advisors are not a legal requirement, which gives the company wide latitude in how the boards are structured and operated.  Boards of advisors typically have less authority or responsibility for the management of the company (in many instances, none), and accordingly expose the members of the board to less risk.

Role of the Board.

In a corporation, all corporate powers must be exercised by or under the authority of the board of directors.  The management of the company is overseen by the board.  For larger and public companies, the directors serve as representatives of the stockholders, selecting and hiring the senior management team, setting executive compensation, approving other incentive and compensation plans for employees, approving long-term strategies, evaluating merger and acquisition opportunities, and overseeing a variety of compliance, reporting and other corporate governance and policy matters.  When functioning properly, the board also works collaboratively with management to help the company stay on course and achieve its objectives. (continue reading… )

 

 

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