Advisory board: Overview, definition, and example
What is an advisory board?
An advisory board is a group of external experts or professionals who provide guidance, advice, and strategic input to a business or organization. Unlike a board of directors, an advisory board does not have formal decision-making authority or legal responsibilities. Instead, it serves as a consultative body that offers insights based on their expertise in specific areas such as business development, marketing, finance, or industry knowledge. Advisory boards are often used by businesses seeking to grow, improve operations, or make informed decisions with the help of external perspectives.
For example, a tech startup may form an advisory board of experienced industry professionals to help guide the company's product development and market expansion.
Why is an advisory board important?
An advisory board is important because it brings a diverse range of knowledge and experience to a business, helping the company make more informed decisions. These external advisors can provide valuable insights into industry trends, best practices, and new opportunities, and they can also help identify potential risks. For businesses, having an advisory board can improve credibility, attract investors, and foster relationships with key stakeholders.
Advisory boards also offer guidance in areas where a business may lack internal expertise, helping the company grow and achieve its goals without the formalities and legal responsibilities of a board of directors.
Understanding an advisory board through an example
Imagine a small e-commerce company that is looking to expand its product offerings and enter new markets. The company does not have a lot of experience in international trade, so it decides to form an advisory board consisting of experts in global logistics, international marketing, and cross-border finance. These advisors provide the company with strategic advice on how to approach international expansion, helping the company avoid costly mistakes and make informed decisions.
In another example, a non-profit organization focuses on environmental sustainability. It forms an advisory board of professionals from the environmental science, policy, and fundraising sectors to help guide the organization’s strategies and connect it with potential donors or partners. The advisory board offers advice on sustainability initiatives and assists with fundraising efforts.
An example of an advisory board clause
Here’s how a clause related to an advisory board might look in a business agreement:
"The Company agrees to establish an Advisory Board consisting of three members with expertise in the areas of marketing, technology development, and finance. The Advisory Board will meet quarterly to provide strategic guidance, help shape business decisions, and advise the Company on its growth plans."
Conclusion
An advisory board is a valuable resource for businesses looking to tap into external expertise and receive strategic guidance without the formal responsibilities of a board of directors. Whether for growing a company, expanding into new markets, or improving operations, advisory boards provide insights that can help businesses make more informed decisions, build credibility, and navigate complex challenges.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.