Advisory boards have no binding decision making
authority or executive function in the context of the
relevant business, corporation or organisation.
Advisory boards are distinct from a board of directors,
management committee or council in whom the
governance, direction and management of a corporate
entity may be reposed in the terms of the Corporations
Act 2001, state/territory based associations incorporation
legislation or other statutory enactment by which the
relevant corporate entity is constituted.
Although members of advisory boards may be expected
to act with due care, they are not fiduciaries charged with
fiduciary duties and responsibilities.
Advisory boards generally have no recognised legislative
or regulatory mandate or constitutional base, although
there may be exceptions particularly in the public sector.
Advisory boards are more often constituted in the terms
of an organisation’s governance arrangements, be they
formally set out in a charter or less formally adopted
in the terms of an organisation’s cultural practices.
The terms of an advisory board’s remit, constitution,
function, accountability and responsibility desirably should
be set out in a documented charter or terms of reference.
Typically that charter or terms of reference will also
prescribe the desired skills and experience of the advisory
board’s members, who appoints them and the term and
basis of appointment and any remuneration, stipend or
honorarium that may go with the appointment.
Care needs to be taken that advisory board members,
by the structure of their office and functions or by the
practice of the performance of their role, do not become
de facto or shadow directors with the attendant additional
duties, responsibilities and personal liabilities involved for
a director of an organisation.
Advisory boards commonly may be found in the
- In support of a proprietary company board seeking to
transition the corporation through inter generational
succession planning or towards public status;
- In support of a corporation expanding to new
geographical or operational markets by bringing specialist
skills, experience, knowledge or business networks to the
corporation’s main board’s considerations;
- In support of a government minister’s portfolio
responsibility by bringing diverse stakeholder perceptives
to a statutory function or mandate;
- In support of the managing committee or board
of a community based association by bringing specialist
experience or knowledge to a particular function
or aspect of endeavour of the association.
How is an advisory board different to an
Directors of an organisation’s main board generally have
fiduciary duties, including a responsibility to act in good
faith in the best interests of the organisation and for
a proper purpose. For companies incorporated under
the Corporations Act 2001 ('Act'), these duties are set
out in ss 180-183. The members of the main board
are generally responsible for corporate outcomes, and
conformance with legal and regulatory requirements.
Directors can be held legally liable for not fulfilling these
duties. Similar fiduciary duties generally apply to directors
of other organisations as well.
Members of an advisory board, on the other hand, are not
'directors' for the purposes of relevant legislation or at
general law. Their role is defined by the terms of reference
by which the advisory board is constituted or by which the
advisory board acts in practice. Generally its members owe
no fiduciary duties to the organisation or its members or
shareholders. Roles for advisory boards will vary between
organisations but generally they will relate to providing
objective advice, insights or recommendations. They have
no authority to act on behalf of the organisation.
While they technically have no legal liability as directors
of the organisation, it is advisable to confirm the role of
advisory board members in a charter or terms of reference
stating the scope and limitations on their authority
and the non-binding nature of their advice. This will
assist to avoid confusion as to the scope of their role
“Directors of an organisation’s main
board generally have fiduciary duties,
including a responsibility to act in
good faith in the best interests of the
organisation and for a proper purpose.”
What are the roles and responsibilities
of advisory boards?
The roles and responsibilities of advisory boards generally
will be determined to best suit the organisation’s particular
circumstances and needs. These roles, responsibilities and
expectations of the advisory board should be formalised
in a charter or terms of reference which is approved or
ratified by the main board. As there is no legal or formal
definition for advisory boards, the organisation can
structure its advisory board in the most appropriate fashion
having regard to the organisation’s needs and the attributes
and availability of the advisory board members.
Organisations must be clear on the purpose of the advisory
board and what they hope it will achieve. This will help
determine the skills, knowledge and experience needed and
assist in the selection of members of the advisory board.
Effective communication of a clearly defined purpose will
contribute to the success of the advisory board.
Good advisory boards can give fresh insights and thinking
on emerging or unfamiliar issues, respond to ideas from
management, play devil’s advocate and supply high
quality objective advice to support the main board’s
decision-making. Members of advisory boards are often
selected because of their skills, experience, network
contacts and their ability to facilitate introductions
to potential suppliers, customers etc.
Other roles and responsibilities for advisory board members
- develop an understanding of the business, market and
- provide wise counsel on issues raised by the owners/
directors or management;
- provide the directors and management with insights
and ideas which can only come with distance from the
- encourage and support the exploration of new
- act as a resource for executives;
- monitor business performance and challenge the directors
and management to consider options for improving the
What are the benefits of having an advisory board?
Having an effective advisory board can bring benefits
to an organisation including:
- drawing on the experience, skills and knowledge
of people who have practical experience in the business
or strategies of like industry organisations;
- enhance the organisation’s reputation and credibility
in the market place;
- increase consumer and investor confidence;
- gain the benefits of an advisory board’s inputs without
the complications and risks of the advisory board
members becoming members of the main board.
“An added benefit is that the advisory
board may in the longer term be a source
of potential directors for the main board.
The advantage is that these people
are familiar with the organisation, its
strategic objectives and key people, and
could make a meaningful contribution
early on in their appointment.”
In family companies, setting up an advisory board can
be a way to test the quality of contribution that can be
made by outsiders and could be a precursor to appointing
an outsider to the main board.
When would a company need an advisory board?
There are many situations in which an advisory board may
prove valuable to a company:
- guiding start-up companies in a rapid growth phase;
- creating a new product line;
- moving into a new market segment or industry;
- moving into a new geographic area;
- making the transition from private to public and perhaps
leading up to listing on a stock exchange;
- restructuring and repositioning a company in the market;
- implementing major new technology within
- staving off a serious competitive threat;
- analysing a potential takeover target.
Who sits on advisory boards? How do you
A wide array of advisers are available to organisations.
When considering setting up an advisory board,
an organisation should understand the issues on which
the advisory board will contribute and then determine
the experience, skills and attributes that are best placed
to assist. This will mean targeting advisers for their specific
skills, e.g. if a company is expanding into a new market,
ensure that at least one advisory board member has
knowledge of this market.
Typical members of advisory boards may include:
- legal adviser;
- marketing expert;
- HR expert;
- financial adviser;
- industry expert;
- technical expert;
- social or industry sector representatives, for example
consumer advocate, union representative, employer
- semi-retired business people who have a depth
of relevant industry experience.
What legal liabilities exist for members
of advisory boards?
The directors of a company’s main board owe fiduciary
duties of good faith and care to the organisation and can
be liable if they fail to meet these obligations. Technically,
advisory board members do not owe these duties as they
are not directors. However, they may owe other contractual
and tortious duties consistent with the terms of reference
or charter of the advisory board and the responsibilities
and expectations of appointment.
Without clear lines of demarcation between the roles
of the advisory and main board, there may be circumstances
where a court thinks that the main board relies on the
advice of the advisory board without giving it due analysis
and consideration, particularly if there is a negative
outcome for the organisation. This may lead to accusations
that the advisory board members are acting as shadow or de
facto directors. A shadow director or a de-facto director is
deemed by legislation and the general law to be a 'director'
and will be liable for breaches of directors' duties.
A de-facto director is a person who is not actually
appointed as a director but acts as if he or she were
(often incorrectly believing that he or she has been
properly appointed as a director). In some cases, informal
involvement in the decision-making of an organisation can
lead to a de facto directorship (see discussion by Professor
R Baxt, 'When you might be seen as a de facto director',
Company Director, July 2012).
A shadow director is also not appointed as a director
but is a person on whose instructions or wishes
an organisation’s board members are accustomed to act.
These are understandably complex areas which advisory
boards wish to avoid.
Documenting a formal charter or terms of reference
outlining duties and responsibilities of the advisory board
will help to properly distinguish its role from that of the
main board. This minimises the chances of directorial
liability for advisory board members. The charter should
include statements about the advisory board members
not being appointed ‘directors’ and having no authority
to act on behalf of the organisation or to make decisions.
The charter should also clearly state that the advice
or recommendation given is non-binding. Directors
on the main board are still expected to discuss, debate
and decide on a course of action themselves, having
considered the advice of the advisory board.
To protect the organisation, the charter or terms
of reference of the advisory board should make it clear
that the advisory board members should be acting
in the best interests of the organisation and not for
personal gain. Their agreement with the organisation
should include a condition requiring disclosure of potential
conflicts of interest and maintaining confidence of office
and information received as an advisory board member.
Potential advisory board members should undertake
a similar level of due diligence on the organisation
as they would when joining a main board. They should
assess what access they may or may not have
to indemnification or directors and officers insurance
as these generally apply only to an organisation’s
directors and officers.
When establishing an advisory board, expectations
must be clearly communicated to the members:
- What will the term of office?
- What is the expected time commitment?
- What is the expected contribution of each member?
- How frequently will meetings be held?
- What is being offered in return?
These matters desirably should be captured in a letter
of appointment annexing a copy of the charter or terms
of reference for the advisory committee itself.
Advisers may feel that their time is being wasted if the
advisory board is not well organised. Meetings should
be run efficiently and effectively:
- prepare an agenda and seek input from participants;
- distribute information in advance;
- stick to time when running the meeting;
- follow up on actions;
- keep minutes;
- keep members informed of developments and activities
Keeping minutes can be a useful way of confirming
that the advisory board’s role is purely advisory and
that they are not acting on behalf of the organisation
or making decisions.
Should advisory board members be paid?
This is a matter for each organisation to decide for
themselves in negotiation with the proposed advisory
board member(s). Some organisations may reimburse
advisory board members for out of pocket expenses;
some may provide a good lunch; others may pay per
meeting attended; others may pay a retainer.
Advisory board members may benefit in non-financial
ways from their involvement. They may become exposed
to new ideas, expand their networks, use their skills and
knowledge in new ways without the burden of fiduciary
duties and possibly enhance their credibility if associated
with other people of influence and business/community
standing on an advisory board.
This document is part of a Director Tools series prepared by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a
starting point for undertaking a board-related activity. It is not designed to replace legal advice or a detailed review of the subject matter. The material in this document does not constitute
legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied
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