There are four types of boards: Advisory, Non-Profit, Private and Public/Corporate.
All have some type of uniqueness as it relates to their purpose, their roles and responsibilities, the stakeholders they serve, the benefits and value they should deliver and the skillsets they require to achieve the optimal composition– and all have their own compensation offerings.
All four types of boards need strong leadership, regardless of size and purpose. All need a clear delineation of responsibilities and expectations to be effective, and all need a clear framework on how to best support the organization they serve and how and when to interact with the organization’s leader(s) and management. Each board’s effectiveness and impact extend well beyond the walls of the room where they meet. All affect, in their own way (small or large), our communities and how we create legacies we can be proud of.
It is my experience that people often underestimate the importance of adopting a strategic approach to the creation, maintenance, refreshment and dissolution of boards. For any board, being prepared and carefully thinking through how to best achieve optimal composition is key. It is work—work that must be done.
It is not uncommon for advisory boards, non-profit boards or family or start-up boards to create their structure without the advice of legal counsel. Regardless of the budget and available funds, it is wise to identify a trusted legal counselor who can guide you and/or confirm that you are exercising appropriate corporate governance. Seeking professional assistance here doesn’t necessarily need to be costly, but the consequences of not doing it right can be. You can’t afford to be informal when addressing board composition through the process of building, maintaining, augmenting, refreshing and dissolving a board.
I have colleagues who don’t believe Advisory Boards should be called boards, since they are not governed with the rigor that the other three types are. Even if you prefer to call them “councils” instead of boards, they still need to be thought out. Rather than directors, advisors are recruited for advisory boards, and unlike the other three types of boards, advisory boards do not have a fiduciary duty.
Advisory boards can exist to provide expertise to complement any of the other three boards, and/or complement the management team and/or any of the functional areas and divisions, and/or complement special “task force” teams, etc. In my opinion, Advisory Boards should be one of the highest priorities for start-ups and for new initiatives that are being tested or pioneered within an organization. When well structured and well managed, they can also significantly increase the bandwidth of and outcome realized for a non-profit organization.
If you join an Advisory Board, be clear about what your role is and what is expected of you. Address up front if your contribution is voluntary or paid. Do not over-promise as a result of being eager to contribute. If you don’t know how to advise and mentor, this is not the right board for you.
Non-Profit Boards serve a 501[c](3) organization, which is an organization that is not and cannot be organized or operated for the benefit of private interests. Essentially, directors on these boards make a commitment to a cause, are volunteering time and are frequently asked to give a philanthropic donation.
Having a lot of experience on advisory boards can be a natural progression to join a Non-Profit Board, while joining a Non-Profit Board doesn’t require that you have had experience on Advisory Boards or any other types of boards. Serving on a Non-Profit Board can also be a great launch pad for eventually joining a Private or Public Board, depending on your role, your contribution and your leadership. If you enjoy fundraising or would like to be a fundraiser, this is the type of board to consider.
Private Boards are not limited to small businesses. There are many mid-size and large companies that are private, and many family businesses are private.
Joining the Private Board of a start-up can be very exciting, quite intense and sometimes draining. Start-ups are all about growth. Investors want it big and fast. In this circumstance, it’s important to be watchful if you are not good at setting boundaries or working under pressure.
Private Board directors have more latitude with regards to their involvement with the CEO and the management team while working to grow the business. In addition, joining a Private Board potentially has a great financial upside, as compensation isn’t necessarily limited to cash, and might/more likely include (or exclusively be) stock options or shares. Private Boards are great launch pads for corporate board service.
Private Boards don’t have the same legal liabilities and risks that are inherent with serving on a Public Board. This can be a good progression to gain experience about governance for landing a board seat for a public company (or to end-up on a public company’s board if the company’s exit strategy is an Initial Public Offering (IPO) during the time you serve on the board). You can also be exposed to an M&A from either side.
If you enjoy working with investors, venture capitalists and/or having exposure to them, this is a great type of board to join, as one of your roles might be to help an entrepreneurial CEO raise money.
Public Boards
Public Boards are by far the most regulated boards. Serving on these boards is time intensive. Since the Sarbanes-Oxley act, directors of Public/Corporate Boards’ roles are more serious than ever, and there is a great focus on independence. While attractive compensation is an upside to Public Board service, a director must commit to allocate time to prepare for meetings, to be part of committees that meet between regularly scheduled board meetings and to attending all meetings. While your experience and skills are very important when seeking a seat on this type of board, you’ll also need to get educated about governance and regulations. You must be prepared to address crises that require board diligence as they surface. Public Board directors have fiduciary responsibilities to shareholders, which carry with them risk of liability, especially if risk oversight by directors isn’t prioritized.
Public Boards are a great place to make a significant impact with an organization and its leaders.
This article originally appeared in my eBook “Board Composition.” Click here for a complimentary download!
Good afternoon,
I have a question regarding your post about the four types of boards. I’m going to be starting an LLC company and plan on launching the online platform in the next month or so. I would like to get an advisory board set up. In the article, it states you should know if it’s voluntary or paid. I plan on posting the position as a volunteer advisory board member. In a few articles, that I have read, it doesn’t clearly state that they have to be paid. Do I have to pay for anyone on an advisory board for an LLC or can it fully be a volunteer position?
Justin,
You indeed don’t have to compensate your advisory board members. It is how you set up the expectations with the members. It is not uncommon for individuals wanting to leverage their skills and giving back. Usually when you build an advisory board your intent is to recruit people that you trust and who are passionate and/or believe in your vision and mission and want to contribute.