Board Committees

Can you cross more off your to-do list if you handle it all yourself or delegate key tasks to trusted colleagues? Most boards — like most leaders — opt for the latter. However, boards delegate to board committees instead of colleagues to stay efficient, effective and decisive.

Harvard Law School Forum estimates independent board directors spend roughly 200 hours per year on board-related activities. That’s roughly one working month per year during which directors must meet with each other, shareholders and executives to discuss issues like environmental, social and governance (ESG), risk management, compliance and more. Board committees are a crucial way for boards to make the most of their time, but only if those committees are well structured.

Here, we’ll explain how to build board committees that work, including:

• What board committees are
• Board committee types and the responsibilities of each
• Board committee structures
• Essential board committee best practices
• How the right governance platform can help

What are board committees?

Board committees are groups of people — usually individual directors — that focus on specific topics about which members have expertise. The idea behind committees of the board is to tap the specific talents, skills and knowledge of individual board directors to inform and educate the entire board on particular areas of concern. Committees allow boards to divide the work of the board into manageable sections.

Board committees aren’t required to address many of the routine matters that boards must regularly complete and document; committees do much of the legwork in helping the board achieve its objectives. Just as board structures need to uniquely reflect a corporation’s needs, board committee structures must also reflect the strategic plans the board develops.

Board committee types and their functions

The types of board committees can range from company to company and depend on the support the board needs to meet the corporation’s strategic goals. However, there are some standing committees common among corporations, which include:

Audit committee

The audit committee oversees the company’s financial reporting and internal controls system. Its structure ensures finances remain independent of management, a key control for reducing the risk of fraud and misstatements. Though the audit committee is responsible for conducting the annual audit, it has myriad ongoing responsibilities, including overseeing the financial reporting process, internal controls and independent auditors.

Compensation committee

As the name implies, the compensation committee determines executive compensation, including salary and other benefits. What exactly they do depends on the corporation’s bylaws. Still, the committee will typically either determine compensation amounts on their own or recommend compensation packages to the board for a deciding vote.

Nominating and governance committee

Board members who are not running will participate in the nominating and governance committee, which recruits candidates for both the board of directors and executive leaders. This function is essential to corporations, as the board members will define how effectively the corporation reaches its goals. The nominating process also requires confidentiality, which makes a centralized governance platform crucial.

Investment committee

Most corporations have investment strategies, which are overseen by the investment committee. The committee is responsible for tailoring an investment plan to the corporation’s strategic objectives and financial needs and approving any major transactions. That said, the Chief Investment Officer (CIO) and their team will actually manage the portfolio, so trust between the CIO and the investment committee is key.

Executive committee

Most organizations will experience a crisis. The executive committee will convene to address it because gathering the entire board on short notice can be difficult. Their job is to identify which issues require decisive action and which require the involvement of the full board. Though they have some signing authority, the executive committee is still accountable to the board; it’s important to appoint trustworthy, credible directors to this committee.

Cyber-risk committee

In the face of ever-evolving technology, the cyber-risk committee is charged with mitigating rapidly increasing risks, from breaches to hacks to corporate espionage. This committee oversees all cybersecurity issues, creates a strategy, and works with cybersecurity and risk departments to implement it effectively. They’ll also be the first committee executive leaders look to should new cyber risks arise.

Board committee structure

The structure of a board committee depends on that committee’s structure. Some committees are standing — meaning they are omnipresent in the board room — while others assemble based on specific needs or to address temporary challenges. Most boards will have a mix of different board committee structures, including:

• Standing committees: These committees are permanent, meaning they handle specific issues on an ongoing basis. The audit, compensation and nomination, and governance committees are examples of standing committees most — if not all — corporations have. Their presence allows the board to oversee important functions more effectively over time so the full board can focus on broader strategic issues.
• Ad hoc committees: Unlike standing committees, boards form these committees to address specific issues or tasks on an as-needed — or ad hoc — basis. The committee convenes to address a given responsibility and disbands once it is no longer needed. Ad hoc committees are an excellent option for temporary challenges like overseeing a merger or acquisition or executing a special corporate social responsibility (CSR) initiative.
• Task forces: Similar to ad hoc committees, task forces assemble for a particular purpose and disband once they’ve fulfilled that purpose. However, unlike ad hoc committees, task forces tend to be more time-bounded and oversee a specific area, like a crisis, a strategic opportunity, or the transition of onboarding a new CEO.
• Advisory committee: When a board needs advice or recommendations on a specific issue, it will look to the advisory committee. An advisory committee doesn’t have decision-making power but can inform the board’s actions by providing insights based on its expertise or experience. Board directors aren’t usually part of the advisory committee; industry experts, academics, community leaders, or stakeholders will offer their perspectives.

Benefits of establishing a clear board committee structure

Board committees provide a platform for boards to deal with specific issues requiring specialized expertise. As a result, committees of the board can set their agendas so they can get down to the meat and bones of their work right away.

This helps the board divide its work into manageable and decisive areas, which:

• Maximizes efficiency: Certain board issues are of such a complex nature that they demand substantially more time than a board can commit to during the course of one or two board meetings. Boards can establish committees for nearly any need that they have to maximize their efficiency.
• Uses time wisely: According to a research paper by Harvard Business School, committee size tends to increase with firm size. A committee of the board allows board members the proper time required to research various issues and permits broader participation by all board directors.
• Increases accountability: Committee members have specific assigned tasks and are directly accountable to the full board for completing them. Because committees have dedicated time for addressing agenda items, boards expect them to conduct due diligence and be thorough, yet timely, in pursuing their responsibilities.
• Bolster’s oversight: Committees can provide a more in-depth look at different issues facing the board because they can focus their time and attention on what’s in front of their committee and set aside issues facing others. This helps satisfy boards’ need for concise, comprehensive information to guide their votes on specific issues.
• Breaks down silos: With an eye on efficiency and to prevent duplicity, many boards structure their committees with multi-committee directors. Directors who sit on several committees share helpful information, alleviating information segregation issues. Multi-committee directors tend to be outside directors with a surplus of expertise in several areas.

10 board committee best practices

Research has shown that most board activities happen within committees, especially post-SOX. This has intensified the focus on having board committees and ensuring they operate seamlessly and efficiently.

However, creating a committee isn’t foolproof; establishing committees requires careful planning and alignment with the corporate strategy to ensure boards get the most out of the committee structure.

To create committees that make the board more effective — not less — corporations should:

1. Create committees for a specific purpose: Boards should form committees to do the work that is impossible or impractical for the board to perform independently. Many boards make the mistake of forming too many committees for too little reason, often stretching board directors too thin. Without a solid purpose, committee members become bored and unproductive.
2. Be flexible: A board’s needs are ever-changing. Accordingly, committee work assignments must be flexible and change as often as necessary to keep committee work aligned with the board’s strategic priorities.
3. Identify the right committee size: Just as board size is important, committees can also be too large or too small to perform meaningful work. Committees that are too large risk not getting all their members’ valuable perspectives and opinions and risk slowing down the committee’s work. Committees that are too small risk board directors being too busy to commit to their board and committee duties fully, and they may fail to arrive at committee meetings prepared and ready to engage.
4. Regularly review committee performance: To keep up with committee objectives, boards must periodically evaluate whether the committee’s instructions are clear and relevant and ensure they don’t overlap with other committees’ responsibilities. Ensure each committee has clear, distinct responsibilities and a system for fulfilling them.
5. Find the right structure for your board: Some boards function best by rotating board directors through various committees so they gain a greater understanding of each committee’s work. Others retain the same members on committees so that they develop a deeper level of expertise in the committee’s area of work and become an integral part of helping the committee reach its goals. It’s also possible to take a hybrid approach and find some balance between the two approaches. Where issues may intersect, committees may join together occasionally to collaborate.
6. Form committees strategically: To fulfill their fiduciary duties, boards must meet the growing pressures from legal and regulatory authorities. In today’s climate, boards must take a proactive approach by focusing more on committees’ work and how they interconnect with other committees rather than forming committees as a matter of routine. Boards guide committee work with the goal of shaping the board.
7. Leverage different committee types: Forming subcommittees is a good way for committees to tackle highly specific work. Subcommittees can be instrumental in making committee work manageable. Boards usually have a few standing committees and form ad hoc committees as needed. Ad hoc committees meet for a shorter period and are charged with working on specific issues.
8. Allow for written reports: Committees may make oral or written reports, which should become part of the meeting minutes. To save valuable board time, board committees that haven’t taken any action and don’t have crucial information to report may file a short, written report of the committee’s work and include it in the board meeting materials. As a word of caution, board directors shouldn’t take meeting time to review written committee board reporting.
9. Assign directors to a manageable number of committees: Boards have various schools of thought regarding which board directors to choose for their committees. Best practices suggest that board directors shouldn’t serve on more than two committees in the interest of being committed and effective.
10. Evaluate and refresh board committees: As with the full board, each board committee should conduct an annual evaluation and occasional refreshment to ensure the committee composition still aligns with the committee’s goals. In particular, each board committee needs to ensure a succession plan is in place for onboarding new members and new committee chairs.

How Diligent unlocks efficient and effective board committees

Committees have varying levels of decision-making authority — some can make decisions on behalf of the board, while others need the full board’s approval. But even if a committee doesn’t have the power to make binding decisions, they still operate fairly independently.

At the same time, board committees only maximize the board’s reach when they collaborate with each other and the full board. If they’re too siloed, the full board won’t have the real-time and reliable insights they need to make strategic decisions about the issues committees oversee.

Diligent Board & Leadership Secure Collaboration, part of the Diligent One platform, maintains committee productivity while keeping the board in the loop, making it easier to streamline how your committees and the full board collaborate.

Learn more about the Diligent board portal and request a demo here.