At an event the other day, discussing the merits of Non-Executive Directors (NEDs), I was asked “So what is the difference between Advisory Boards, Advisory Councils and NEDs?” As the MD of a company that creates and manages Advisory Councils, they hoped I could clear up the confusion. And it is actually a really good question.
The similarities between Advisory Boards, Advisory Councils and NEDs
Before looking at the differences though, it’s perhaps worth touching on their similarities.
In essence, they are all tools used by organisations to help make better decisions. They offer expertise, advice, guidance and opinion.
Typically they are formed of experienced executives from private business, academia, the public sector, or not-for-profit organisations. All act in an ‘advisory capacity’. But that’s really where the similarities end…
What is an Advisory Board?
Advisory Boards are in many ways similar to NEDs.
Who are on Advisory Boards?
They tend to be industry or academic experts providing support to the Board or the wider business. Typically, they have ‘been there, done that’, or they are ‘guru’s’ in a particular field.
- They offer respectability to an organisation and provide practical input and direction to the Board or Executives of the business.
- Advisory Boards ‘do what it says on the tin’, they act as an advisory group (or as individuals), helping steer, promote or run the business.
- The lack of liability and responsibility associated with the running of the organisation can allow you to tap into certain experts who may not want to be Non-Executive Directors.
- They don’t sit on the Board like NEDs.
- They don’t have the same liabilities or responsibilities at NEDs.
- They may input into strategy and process, but they don’t cast a vote on strategic or organisational decisions. It’s the role of de jure Directors to take responsibility for the actual decision making, and they carry the corporate ‘can’ if things go wrong!
What is an Advisory Council?
So that leads us to Advisory Councils, which sound similar to Advisory Boards. Indeed, although they have a common end goal, their function and mode of operation is quite different.
Their raison d’etre is to advise and influence the strategy and direction of the business. They do this by providing feedback, thought leadership, co-creation, and opinion to help develop new products, evaluate propositions or assess services.
Who is on an Advisory Council?
The Advisory Council will normally comprise key clients, stakeholders or thought leaders. An Advisory Council typically has many more members than Advisory Boards or NEDs. They can range in size from less than fifty to many thousands of customers, c-suite executives or stakeholders.
Advisory Council members should be selectively recruited to ensure they are representative of the customer base, prospect base or some other cohort. They normally interact with the business online, but also by phone or occasionally face-to-face. Sometimes people refer to them as B2B panels or communities, but their role is far more than just a research tool.
- Well set up and managed they become a fully engaged forum of VIPs, providing valuable advice and feedback on a range of subjects.
- They are extremely flexible and varied – neither NEDs nor Advisory Boards can offer the range of advice or match the flexibility of Advisory Councils.
- Recruiting and maintaining a representative group can be challenging and requires skill and time.
- If the company sells overseas, then the membership of the Advisory Council should reflect this and bring an international perspective to the organisation – which can bring added complexities.
What are Non-Executive Directors (NEDs)
Most people understand the role of the NED, to some extent at least. There’s no doubt they are valuable to a business, if chosen well.
Who are the Non-Executive Directors?
Non-Executive Directors are selected to influence a company’s overall direction and priorities. Their input is usually around 20 days per annum. As de jure Directors they sit on the Board and typically input into strategy, risk and compliance.
Their focus is not normally operational process or day-to-day executive tasks, their input primarily relates to high level boardroom decision making.
- While NEDs are not always experts in the industry or the service that the company provides, they instead may be specialists in a particular field, role or function. Having an outside opinion can help raise issues or questions that may not have been considered before.
- There is a selection process involved which can help you ensure you have a good balance of expertise and experience.
- Most people seem less aware of the corporate governance involved and the fiduciary liabilities that NEDs have responsibility for.
- From a company’s perspective there is the process of selection, appointment, remuneration, defining a service contract, and notification of appointment to Companies House, all of which make it far from straightforward.
- The resulting advice does not usually help general executives who run segments, departments, regions, products, services or functions.
So, in simplistic terms these are the main differences between Advisory Boards, Advisory Councils and NEDs. They each serve different purposes and bring different perspectives. Businesses would be wise to consider them all, and potentially benefit from all three!
To help understand the Advisory Council more, we have produced a best practice guide to Designing and implementing an Advisory Council which you can download here.