Should I Be Part of an Advisory Board?

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Table of Contents

• What is an Advisory Board?
• Benefits to Your Career
• Board of Directors vs Advisory Board
• Legal Responsibility of Advisors
• Key Takeaways
• Frequently Asked Questions

If you are a budding entrepreneur, a management consultant, or a business-minded person with a particular skill set, a seat on an advisory board may be perfect for you. Being part of an advisory board allows you to contribute to growing a business, company, or association. This article will discuss whether the position is right for you. 

What is an Advisory Board?

An advisory board is a group of individuals selected and appointed based on their individual skills and expertise in an area of interest to the entity. Sitting on an advisory board implies that you possess specialist qualifications and experience, where your expertise can help a company grow and succeed. 

You are generally expected to do no more than offer advice on the topics within your realm of expertise. Depending on the terms of your appointment, the company has broad discretion to determine:

• what kind of compensation you will receive;
• how often you need to lend your services; and 
• the length of your appointment. 

Benefits to Your Career

Serving on an advisory board can lead to numerous benefits for your career. It not only gives you the opportunity to showcase your acquired expertise, but connects you with like-minded individuals. Traditionally, advisors find the experience a valuable networking opportunity and a way to further their own reputation. It is also a way for both the entity and the advisor to leverage each other’s existing reputation for mutual benefit. Entities that add renowned advisors will give further legitimacy to their operations. Likewise, it is a feather in the cap of any advisor to demonstrate their in-demand skills. 

Another benefit is seeing your practical and educational skill set being deployed by an organisation. Advisory boards are often seen as stepping stones to one day being on a board of directors. If you can prove that your advice is valuable and reliable, you could one day serve on the board of directors. 

Board of Directors vs Advisory Board

An advisory board is different to a board of directors in that, generally, the advisors do not owe a fiduciary duty to the company. An advisory board is an informal body, not a legal one. Its primary purpose is to contribute to the company’s skill, expertise, knowledge and connections. 

Although advisors give their opinion to guide the company, headed by the board of directors, their advice is not binding. The directors have complete discretion to follow or ignore the advice on any matter. 

It may be disheartening for a company to appoint you to an advisory board just to ignore your advice. However, directors’ ability to reject your advice cements your role as an advisor rather than a shadow director. 

Legal Responsibility of Advisors

Generally, the law will not hold advisors legally responsible for a company’s decisions because their advice is non-binding on directors. Indeed, directors have a legal obligation to exercise their duties with due skill and care, including evaluating the quality and accuracy of advice from advisors. Advisors, on the other hand, simply give an opinion based on their experience. 

However, there are circumstances where an advisor may be deemed a shadow director, therefore owing a fiduciary duty to the company. For example, a court may deem an individual to be a shadow director when the advisor has the capacity to alter the entity’s direction or financial position. 

There are significant consequences if the law finds an advisor is actually a shadow director, which attracts the same obligations and responsibilities as a director. In recent years, several court cases have brought to light the consequences of overstepping the remit of being an advisor. 

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Key Takeaways

Being a member of an advisory board is an excellent way to further your career and connections. As you are just offering advice based on your knowledge, the company is under no obligation to follow your advice. It follows that, generally, the law cannot hold you responsible for the actions of the company. Indeed, there is very little (but not zero) legal risk when acting as an advisor, making it an attractive opportunity.

For more information on the benefits of serving on an advisory board, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions