Question

Which of the following statements about advisory boards is incorrect?

a) A growing number of startups are forming advisory boards.
b) The fact that a corporation has a board of directors does not preclude it from establishing one or more advisory boards.
c) Similar to a board of directors, an advisory board has legal responsibility for the firm in certain areas.
d) An advisory board is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis.
e) An advisory board can be established for general purposes or can be set up to address a specific issue or need.

Answer 1

The incorrect statement is that advisory boards have legal responsibility for the firm, which they do not. Advisory boards provide expert advice and strategic guidance, whereas a board of directors bears legal decision-making power and oversight responsibility for the firm.

Step-by-step explanation:

The incorrect statement about advisory boards is: c) Similar to a board of directors, an advisory board has legal responsibility for the firm in certain areas. This is incorrect because, unlike a board of directors, advisory boards do not have any formal legal responsibilities or decision-making power within a firm. Advisory boards are essentially formed to provide expert advice and strategic guidance to the firm's managers.

Advisory boards can indeed be valuable for startups and can co-exist with a corporation's board of directors. They can be formed for general advisement or targeted purposes, but they do not participate in formal governance or bear legal duty for the firm's actions.The board of directors, on the other hand, are elected by shareholders and have a fiduciary duty to oversee the firm's management and ensure that the firm operates in the shareholders' best interests. The directors' selections are often influenced by top executives, which may create a conflict of interest. This dynamic highlights the need for effective corporate governance structures.