Final answer:
The main difference between a board of directors and a board of advisors is that the board of directors has legal authority and fiduciary responsibilities to the shareholders, while a board of advisors provides non-binding advice without legal obligations.
Step-by-step explanation:
Major Difference Between a Board of Directors and a Board of Advisors
The major difference between a board of directors and a board of advisors lies in their roles and legal responsibilities. A board of directors is a governing body elected by the shareholders and is legally accountable for the company's operations, ensuring the company is run in the interests of the shareholders. In contrast, a board of advisors serves as a consultative entity, providing expertise and advice to the firm's executives without legal oversight responsibilities.
While the top executives of a company often have a strong voice in selecting candidates for their board of directors, these directors have a fiduciary duty and are the first line of corporate governance. They oversee the company's management, strategic direction, and financial reporting. Conversely, advisors on a board of advisors do not have formal control over the company’s operations and their role is typically less formal and involves fewer legal obligations.
This distinction is significant because it influences how a firm operates and is governed. The board of directors makes binding decisions and has a direct impact on corporate governance, whereas a board of advisors provides non-binding suggestions without the authority to enforce decisions.