Introduction

The concept of a Board of Advisors is not new; however there appears to be very limited coverage of the concept in business and academic publications. While some writers have proposed the use of a Board of Advisors for large corporations and small businesses, textbooks on business management are mostly silent about the subject. In addition, academic researchers have conducted very little empirical study on the subject. The main purpose of this article is to describe our recent study on the composition and use of Boards of Advisors by small businesses. In the process, we will also provide an up-to-date coverage of the literature on Boards of Advisors. 

In a small business, the management faces most of the same operational problems of large corporations, but the small business usually lacks the staffing to deal with these problems. The President or Chief-Executive-Officer of a small business, often coming from a technical or engineering background might lack the necessary experience in general management. In addition, the firm often has a very small management team, lacking in finance, accounting, marketing or strategy expertise. In this situation, a Board of Advisors, or quasi-board, might prove useful. 

A Board of Advisors has some similarity to a Board of Directors, but there are some important differences that make the Board of Advisors an attractive option. The two types of boards are similar in that the boards can offer outside expert advice to management on many strategic and operational issues. However, whereas the stockholders of a large corporation choose the Board of Directors, the management of a small business will choose the members for its Board of Advisors. Thus, the President or Chief-Executive-Officer of a small business can decide which skills and expertise the firm needs most from the advisors. This, in turn, helps direct the choice of advisors. Boards of Directors typically serve as an oversight function and give directions to management, while the Board of Advisors' responsibility is to provide advice, not oversight and direction. Thus, the power relationship between management and the board differs. Management gets to decide which issues need to be addressed by the Board and management is free to accept or reject advice from the Board. Since the main role of the Board of Advisors is advisory, there is also the advantage of little, if any, liability on the part of the advisors. This assumes that the advisors act strictly in an advisory capacity.

Following is a tabulation of some of the main differences between a Board of Directors and a Board of Advisors. 

Table 1: Board of Directors versus Board of Advisors

Directors Advisors
Choice of Members By shareholders By Management
Purpose Oversight Only advisory
Oversight Give directions Simply advisory
Agenda BOD sets agenda Management sets agenda
Liability Increasing Little, if any (assumes only advisory)
Responsibility
 Directs Management Advises Management
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