Businesses with significant assets and responsibilities, like UMAFS, generally opt to be organized as corporations, while smaller and newer companies generally opt to be limited liability companies. A corporation is always governed by a board of directors as a matter of law. A limited liability company can be member-managed or manager-managed, and the manager can be a single person or a board of managers acting on a procedural continuum of more or less the same way as a corporation’s board of directors. Under the law in Utah and most other states, a corporation’s board of directors can be as small as only one person, if there is only one shareholder.
It is well understood, as an operative law in human dynamics, that a strong-willed owner-president of a new emerging corporation can dominate and get more agreeable decisions from a small board of cronies, who are often other owners, than would be the case with a larger more diverse board of directors. A smaller board is also easier to schedule. Having made the decision to vest real decision making power in a small closely-knit board of directors, the strong-willed owner-president of a new emerging corporation often will seek a poor substitute for the diverse real world experience of a strong board of directors called a board of advisors.
A potential customer looking at (1) an established business with significant assets and responsibilities, like UMAFS, with a strong, mature and experienced board of directors; or (2) a new emerging corporation dominated by a strong-willed owner-president, a small board of cronies, and a board of advisors, needs to know the differences between a strong, mature and experienced board of directors and a board of advisors.
| A Board of Directors |
A Board of Advisors |
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The board of directors is the company’s top level decision maker. It is legally in charge of the corporation. Only strongly experienced and competent persons can assume this responsibility.
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The board of advisors only advises. It has no decision making power and is in charge of nothing. Too often a board of advisors is window dressing for a strong willed CEO and a small board of crony directors. |
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The board of directors has a fiduciary duty to the owner(s) of the company and to the customers. This obligation has real legal teeth to it. Only strongly experienced and competent persons can assume this liability. Such a legal duty and liability encourages careful and prudent decision making.
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A board of advisors has no legal duties or liabilities to the owners or customers of a company. Advisors are free to recommend all sorts of plans and schemes knowing that there is no liability for making the recommendation.
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The board of directors is elected by the owners. The owners show confidence or lack of confidence in the directors by voting to re-elect or not to re-elect.
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The board of advisors is selected by the CEO, and can be released by the CEO.
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A board of directors calls for a company and shareholder commitment to pay for and support a functioning board. A company shows its concern for its owners and customers by bearing the costs of a strongly experienced and competent board.
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The board of advisors requires little investment by the company.
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UMAFS has made the commitment to seek out and support a significant board of directors. Eight out of the twelve Directors of UMAFS are practicing physicians, including several past-Presidents of the Utah Medical Association. UMAFS is truly physician owned and physician managed. Four directors are non-physicians. Two are experienced business and government leaders, one is a renowned investment counselor and professor, and one is a senior lawyer with decades of securities and business governance experience. These directors set the philosophies and make the decisions that run the company. It is their guidance and gravitas that has brought UMAFS to its current success as the premier provider in Utah of reliable, diversified and quality investments for physicians at a low cost and with no sales commissions.
