What It Means To Be A Board Member

Being asked to serve on a board is a big responsibility, and so prospective board members should understand the opportunity before making a commitment. For starters, you should do your research on the company and its founders to make sure you are interested in, passionate about, and able to add value to the business. From there, if you are still intrigued, speak with current board members, the CEO or members of the management team. Boards can make a big impact on the ultimate success or failure of a business, so knowing your responsibilities is critical to being a contributing member.

Small businesses may choose to establish two types of boards: an Advisory Board and/or a Board of Directors. While both are important, their purposes and duties can be very different.

Advisory Board
An Advisory Board has no legal authority. As a member, you don’t vote and you have no authority to make any final business decisions. You are there simply to give advice and input to the entrepreneur and act as a sounding board for management. Furthermore, the entrepreneur has full authority to either take that advice—or ignore it.

Being a part of an advisory board can be a very rewarding experience. If you are asked to be on an advisory board, be sure to:

Be open and honest. Your job isn’t to tell the entrepreneur how wonderful his or her ideas are. It is your responsibility to let the entrepreneur know about your experiences, particularly the trials and tribulations you’ve endured that could inform their business decisions. Be frank about possible missteps you see on the horizon.

Become familiar with the overall goals and strategy of the company—especially with respect to market forces. Competition is one part of this. Ask yourself what other companies are doing—are they finding success? Should the company do something similar or avoid a competitive situation? But it’s just as important to have an eye on other market forces, too. Above all, your advice should be informed.

Some businesses have credited their Advisory Board with cutting costs, furthering product development and networking to bring in new clients and investors. Nevertheless, if you are asked to be an advisor, your job is to give advice. You become part of a team of mentors and are there for the good of the business.

Board of Directors
Non-profit organizations are required to have a Board of Directors, but for-profit companies also establish them. A Board of Directors is formally involved in operations; in fact, they are legally responsible for the overall governance of the corporation. They approve all major company decisions, such as selling the company, hiring or firing the CEO, financial dealings and anything else that could significantly have an impact on the company and/or its shareholders. Simply put, each director has a fiduciary responsibility to respect the interests of all shareholders of the company.

A Director is elected by the shareholders for a term of service (anywhere from a year to multiple years) and the number of Directors on a board varies from company to company. Unlike Advisory Board members, Directors are always compensated for their time.

Those serving on a Board of Directors are expected to:

  • Attend all board meetings and events
  • Be familiar with the company’s mission, services, policies and programs
  • Serve on sub-groups and task committees for audits, compensation and other special assignments
  • Be an advocate and ambassador for the business
  • Be up-to-date on company progress and news
  • Follow all conflict of interest/confidentiality policies

A business often will have both an Advisory Board and a Board of Directors. Sometimes these groups are brought together to discuss major company issues, but each board should respect the other’s role.

Establishing a board can be a very important step for an entrepreneur and deciding who should serve on that board (and whether that person should be you, if you are asked) should not be taken lightly.