What’s a Board Observer?
As you can tell from the name itself, board observers are usually people who sit on board to observe, but do not hold a formal position.
Their main responsibilities is to monitor a company’s (mainly early stage) progress, get access to insights, and report back to the organizations they belong to, most of the time venture firms that invested in the company.
What is the difference between a director and an observer?
While both observers and directors sit in the same boardroom, there is a major difference between both roles at many levels:
Voting rights:
- Directors have the authority to directly influence companies’ decisions through their voting rights
- Observers don’t have voting rights and can’t influence decisions directly; however they can influence indirectly by providing insights and perspectives.
Legal responsibilities:
- Directors hold a formal position within the organization’s governance, are legally responsible and have fiduciary duties to the organization
- Observers have a more informal role and do not hold the same level of legal responsibilities and liabilities as directors.
Participation in discussions:
- Directors are expected to have an active role in the board discussions and contribute to the decision making process
- Observers are expected to observe (aka listen) without being involved in the discussions, however this depends from one board to another as some boards allow observers to actively participate in the discussions. On the other hand, some boards ask observers to leave the room when discussing highly confidential topics.
In short, both observers and directors play a key role in companies governance, however directors have formal authority and legal responsibilities, while observers monitor companies progress and report back to their firms, and can still indirectly influence by providing valuable insights and perspectives without the same level of liability as directors.