by The Nonprofit Law Blog, April 20th, 2011.
A nonprofit corporation is required to have a board of directors. States can vary among respective requirements of a board of directors but the general idea is the same: there must be a board of directors that serves as the ultimate governing body of the corporation. In addition to being legally responsible for the overall management of the corporation, a director is legally required to perform his or her responsibilities subject to the fiduciary duties of care, loyalty, and obedience to the nonprofit corporation. (See, e.g., California Corporations Code Section 5231 which states duties must be performed “in a manner that the director believes to be in the best interest of the corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.”).
Sometimes, a board of directors will elect to set up an “advisory board.” To an outsider, this advisory board may look very similar to the board of directors in some respects – for example, some advisory boards attend all board meetings, participate in discussions on important matters of the board of directors, and are composed of important stakeholders such as past directors and valuable donors. Although this group of individuals may be referred to as an advisory board, this “board” is not synonymous with the type of “board” that constitutes the board of directors. It is actually a committee created by the board of directors for advisory (or honorific) purposes but given a title that includes the word “board.” Accordingly, an advisory board is not the legal governing body of the organization and does not carry the same legal responsibilities and fiduciary duties as the board of directors. Additionally, in most cases, an advisory board tends to be a non-board committee, which means that it cannot act with the authority of the board of directors and may not be relied upon to the same extent as a board committee.
While an advisory board can provide valuable assistance to an organization and its board of directors, a problem occurs when the line between the two groups becomes blurred in practice. Understanding the difference between an advisory board and board of directors is important for ensuring proper oversight of the organization and for directors in satisfying their fiduciary duties. Below we’ve outlined common missteps and potentially important considerations for an organization using or contemplating the use of an advisory board. (continue reading… )