Tom Burke (Chief Financial Officer of Hydra Biosciences), Joshua Fox (Partner at WilmerHale), Mike Massaro (Chief Executive Officer of Flywire) and Sameer Sabir (Chief Financial Officer of SevenOaks Biosystems) spoke at WilmerHale’s QuickLaunch University on Best Practices for Building a Board of Directors and Board of Advisors. Over several weeks, we have shared comments on the topic. In this final week, we explore advisory boards.

On the difference between a board of advisors and a board of directors…

Every company is required to have a board of directors—which can make decisions for the company and can appoint/remove the CEO—from the time of incorporation. At the beginning, the founders of the company are likely to be on the board as directors. Once a company raises capital from institutional investors, these investors will usually join the board of directors as well. In most cases, the CEO will continue to serve on the board, but other founders may no longer have board seats.

A board of advisors, on the other hand, is usually formed to help a company solve specific problems. For example, a life sciences company’s scientific advisory board can provide subject matter expertise and help the research and scientific teams with questions about clinical trials and product development. Though having a board of advisors is optional, companies typically choose to build them since expert advisors and key opinion leaders can bring credibility to the team and help navigate tough issues.

On when a company should have a formal board of advisors…

For most companies, the question of whether to have a formal board of advisors largely depends on the stage the company is in, and whether specific subject matter experts are needed.

In an early stage technology company, unless there is a real need, a board of advisors may become time consuming for the executive team to manage. However, a tech company’s needs can change rapidly in its early stages (for instance, with pivots and other developments), so the type of advisors a company might need can also change. Also, removing an individual from the board of advisors may not be easy. Usually, management teams at early stage technology companies will initially choose to have individual advisors rather than a board of advisors.