Every company in India, whether listed or unlisted, is required to have a Board of Directors. There is an increasing trend for many companies to also have an Advisory Board, in addition to this fiduciary Board. As against a Board of Directors, which has fiduciary roles and responsibilities, an Advisory Board is an informal group of experts, each of whom is a subject matter expert. The main purpose of this Advisory Board is to provide advice and guidance to the top management, to help run the business of the company more effectively. An Advisory Board is not a substitute to the Board of Directors, which has authority derived from law, and which has to safeguard the interests of various stakeholders of a company. An Advisory Board’s key role is to help top management run the business more effectively.
The concept of Advisory Boards is catching up in India for a number of reasons.
The Board of Directors continues to be at the apex of the company. The Advisory Board does not have any formal position in the formal hierarchy of the company. Any advice that the Advisory Board may make, would be to the top management alone. The top management reports to the Board of Directors, but they can go to the Advisory Board for their advice or feedback before approaching the Board. Also, there is limited interactions between the members of the two Boards, since the role of Advisory Board members is mostly to advise management personnel.
Advantages of constituting an Advisory Board
Disadvantages of an Advisory Board
On balance, Advisory Boards can add value, since they enable access to experienced persons, who for reasons of increasing liabilities, would not be interested in serving on fiduciary Boards.