Yeah, I know. That title probably made you drop your coffee cup and think, “Well it’s about time! I’ve been WAITING for a clarification on the difference between advisory and fiduciary boards and it’s finally here!” OK, so maybe that wasn’t quite your reaction. However, being clear on what these two types of boards can do and can not do just might help you make a transformational decision for your company.
Being clear on what an advisory or fiduciary board can do and can not do just might help you make a transformational decision for your business.
As with most things, a lot has changed with boards over the years and the prominence and role of advisory boards has grown. I first wrote about advisory and fiduciary boards in Advisors Advise. Directors Direct. When I wrote that piece, most advisory boards were incredibly informal and honestly, not much more than a group of people you’d typically reach out to individually to ask questions or to get their advice. Since you were smart, you may have thought to yourself, “Since I talk with these people regularly anyway, why don’t I make life easier on them and me and just talk with all of them at the same time once a month or once a quarter? Ta da! You created your advisory board. Good for you.
In today’s business world, advisory boards are game changers. Yes, advisory boards still have no binding or fiduciary authority over you, your staff, your company, or the decisions you make. They are often still created as a stepping stone to test the waters of working with a board before committing to the establishment of a true fiduciary board. However, given the rapidity of change, advisory boards, when designed and managed well, can be a secret weapon in enabling you to make better decisions quicker and with more confidence. How? They focus on acting as an ‘advisory’ board or committee to you – an individual leader, to you the owner, to the CEO, or even to the fiduciary board. They provide advice on specific, business-critical issues or opportunities. When curated well, advisory boards are composed of subject matter experts (SMEs) who have been asked to serve because of their deep knowledge on specific issues or emerging trends. These advisory board members have critical insights and networks that can provide information on cyber security, risk, AI, international expansion, mergers and acquisitions, digitization, geo-political market impacts, and capital acquisition to name just a few. A SME advisory board relieves the pressure on the one or few board or staff members with area-specific expertise. They serve as advisors, a sounding board, and strategic partner in honing ideas for presentation to senior staff or even to the board for further review and decision. Their job is simply to advise. They can’t force staff or the board to take action.
Advisory boards, when created and managed well, are game changers.
A fiduciary or governance board’s responsibility is to guide the overall direction of the organization and to be ultimately responsible for the success of the company. Fiduciary boards are typically elected by the shareholders. These board directors operate under a Duty of Care and Duty of Loyalty framework. Under Duty of Care, they are obligated to take their responsibilities seriously and do their best work for the good of the organization. Under their Duty of Loyalty obligation, the directors conduct their work and make decisions for the benefit of ALL shareholders and the benefit of the company whenever possible. This two-pronged focus on governance is crucial in organizations with multiple owners. It ensures greater objectivity and whole-company thinking. The fiduciary board hires and monitors the performance of the President/CEO and should be focusing on succession, to again, keep the viability of the organization on track. Their responsibility is to have the right key staff members in place with the right strategies in play to make things happen.
A solid fiduciary board should provide greater objectivity and whole-company thinking.
These are two very different boards, with two very different purposes, with two very different ways to dramatically help and impact you and your business.
Now go refill your coffee cup.
Copyright MMXXV – Liz Weber, CMC, CSP – Weber Business Services, LLC – www.WBSLLC.com +1.717.597.8890
Liz Weber is an advisor to boards of directors, business owners, and C-Suite leaders. She’s a leadership, strategic and succession planning consultant, speaker, and author. She helps her clients focus on the right things at the right times to get the right impact. Learn more about Liz on LinkedIn!
