What is a right for your business? A Board of Directors or an Advisory Board? Having a Board can often feel like something that belong exclusively to big business. But Advisory Boards are gaining profile in New Zealand so how do they differ from Boards of Directors? And should your business have either a Board of Directors or an Advisory Board? Here is a detailed breakdown on the differences between the two to help you decide which would suit your business.

Structure and compliance

A board of directors requires legal and fiduciary obligations and responsibilities. Members on a board of directors are ultimately responsible for the company, its decisions and its actions. Their role is focused on governance and they may be responsible for hiring a CEO who would manage the day to day running of the company. Along with these responsibilities comes a greater deal of power. A board of directors have ability to issue directives (usually to the CEO) and they often represent the business owner(s).

An Advisory Board differs to this as it has no formal legal standing and can only advise the CEO. It therefore, operates as more of a think tank or sounding board to generate ideas and provide guidance. This can make them a more attractive option for those who are either wanting to gain experience within more governance or looking for a smaller time commitment.

New Zealand SME’s

Once reason Advisory Boards are a popular for New Zealand business owners is due to our country’s economic structure. New Zealand has a strong presence of smaller and medium sized businesses. According to Statistics New Zealand’s 2016, Small Business Report, they account for:

• 97% (487,602) of all enterprises.
• 29% (599,880) of all employees.
• An estimated 26% of New Zealand’s Gross Domestic Product.

The smaller nature of an Advisory Board means it’s free from the complex political environment typical of large corporates. This makes an agile and freer approach to governance is easy to achieve.

Advisory Boards provide a flexible approach to governance

The role of a board of directors is governance, while an Advisory Board is designed to be more hands on, focusing on operational issues. Therefore, Advisory Boards are used by innovative companies who are undergoing significant change or want to focus on something outside of their current skillset and expertise. Common topics for an Advisory Board include, transition planning, scaling for growth, dealing with changes in the business environment. Often these are temporary situations for the company and board members may only be needed for a short time. Advisory boards are attractive due to their flexibility. You cannot switch out directors easily. But with an Advisory Board, if you are upfront from the start, swapping out members, downsizing, or even disestablishing your Advisory Board is simple.

For advisors, an Advisory Board offers flexibility and less personal risk. Working with small to medium sized businesses allows for a hands-on experience and the satisfaction of seeing the huge impact your contribution can make. To get started on your own Advisory Board journey join one of our training sessions.