Board committees are a critical component of any successful company’s governance structure. In fact, 75% of S&P 500 companies now use committees beyond the core three mandated by regulatory bodies. Each committee with its particular purpose plays important roles in decision-making, strategic planning, and guaranteeing the organization’s ethical practices.
This article delves into the types of committees in an organization and explains their purpose and responsibilities. It also provides examples of committees in an organization along with their particular responsibilities.
What are board committees?
Board committees are groups of experts created by a company’s board of directors to help them make better decisions on specific areas of operation, such as finance, audit, or compensation. These committees provide in-depth analysis and focused expertise.
With their guidance, the board is enough informed about complex issues. Also, boards can better manage the different aspects of the organization, and plan effectively future campaigns.
By sharing the workload and expertise, board committees are essential for smooth and responsible governance.
What board committees are required?
Although not legally required, certain stock exchanges need key committees such as audit, compensation, nominating, and governance. Organizations can create extra committees based on their needs, as seen by the broad list of committees in an organization.
Common board committees
There are a lot of types of board committees in corporate governance. Each of them carries their important responsibilities and tasks. Others are permanent, while some may be a kind of temporary committee. However, their quantity and composition should be written in company law.
1. Executive committee
Administering rules and managing the operations of a board of directors falls into the lap of its executive committee.
Exactly how much authority an executive committee possesses comes down to the language used in bylaws and varies from organization to organization. Regularly, these collectives consist of the president, vice-president, treasurer, and secretary of the board. However, membership can also be open to other sub-committee chairs in a company.
A board of directors might not require all of these different board committees but will benefit tremendously from being aware of how these groups can be leveraged.
2. Standing committee
Some would call standing committees the glue that holds a board of directors together.
After all, this specific sector of a board bears the brunt of the workload. Of different types of board committees, the standing committee holds the most significant influence over the big-picture direction of an organization’s interests, programs, projects, and overall mission.
It’s common practice for the standing committee to be written in the organization’s bylaws or the board operations and policy manual.
Lastly, standing committees are tasked with scrutinizing high-priority issues, and then putting forth successful solutions.
3. Ad hoc or task force committee
There are times when boards of directors face a specific challenge or need that requires extra attention. In these cases, the board will form a temporary ad hoc task force to tackle the issue.
These committees’ entire purpose is to solve one problem. So, from all types of board committees, they’ll only exist for as long as is needed. Much of the time, ad hoc task force committees are dissolved within a year.
Such groups will often work on special events-based projects, or they’ll analyze a proposed merger, for example.
4. Advisory committee
During circumstances when board sub-committees require an outside perspective, they’ll consult with their advisory committee.
Since these groups lack any governance and are relied upon more for their expert opinion, it’s wise to build them with former board members. Also, it’s worth considering prospective board members and subject-specific experts for the role.
It’s worth noting that the advisory committee isn’t mutually exclusive to non-board members, but that’s how they’re usually constructed.
5. Steering committee
If an initiative falls within the purview of a board of directors, the steering committee is the expert group that guides the project from beginning to end.
Generally, steering committees are an amalgamation of board officers, senior stakeholders, subject experts, executives, client reps, and department employees.
The common practice for these types of board committees is to collectively interact and collaborate to control, prioritize, and define the scope of initiatives. They also act as a guiding force for project managers when they run into problems.
6. Audit committee
The audit committee is critical to ensuring a company’s financial integrity. It coordinates closely with external auditors to examine their work and evaluate the efficiency of internal controls. Moreover, they ensure that the company’s financial reporting meets applicable accounting standards.
This sort of committee consists of economically savvy board members. Members should have sufficient skills to preserve the company’s financial viability.
7. Governance committee
The governance committee helps the corporate and nonprofit board committees make good decisions. They make sure the different committees in an organization follow the rules of good corporate governance.
In partnership with the nominating committee, they choose and train new board members, and make sure everyone is doing a good job. Moreover, they also care about being ethical and doing the right thing. In particular, they want the company to operate transparently and responsibly.
8. Compensation committee
The compensation committee consists of independent and non-independent directors with specific experience in human resources, compensation, and business performance. This committee develops and reviews executive compensation packages, which include salary, bonuses, and long-term incentives.
Also, they verify that these strategies align with the company’s overall performance and the best interests of the shareholders. Their prime task is to attract, maintain, and inspire important leadership talent.
9. Risk management committee
The risk management committee should be composed of directors with different backgrounds in areas such as risk assessment, compliance, and business operations. It serves as a proactive protection for the company.
In particular, it uncovers, evaluates, and prioritizes possible risks that may have negative consequences. The committee proactively manages the potential risk profile by establishing and assessing successful mitigation procedures. It should also handle possible dangers before they impact the organization.
Specialized committees
Boards of directors govern organizations, but they often rely on specialized committees for expertise. These smaller groups focus on specific areas like technology or sustainability. Let’s explore two examples.
1. Technology committee
In today’s world, every profit and non-profit organization needs to keep up with technology. Made up of a bunch of tech-savvy experts, this committee functions as a mediator between the board and the organization’s technology infrastructure.
Basically, they help the board make smart decisions about technology that aligns with the organization’s mission. Also, they figure out what the organization needs, suggest solutions, and make sure everything is safe and secure.
Furthermore, the technology committee also keeps an eye on new trends and tendencies. So it’s apparent this is one of the most helpful committees today. However, while IT board committees should meet on a regular basis, 67% of companies do not hold meetings.
2. Sustainability committee
As the world becomes more environmentally conscious, more companies are forming sustainability committees to address ESG issues and become responsible global citizens. There are their main functions in contributing to ESG practices:
- Developing and executing comprehensive ESG strategies. This involves taking initiatives that reduce the impact on the environment, promote ethical labor practices, and advocate sound governance principles.
- Monitoring of ESG performance. By establishing clear metrics and tracking progress, the committee provides transparency and accountability to stakeholders concerning the company’s sustainability efforts.
- Education about ESG importance. By engaging with employees, investors, and communities on sustainability issues, the committee promotes the importance of responsible business practices.
Best practices for board committees
Effective committees of the board of directors are essential to make the company successful. We provided a list of best practices to ensure they function at their highest potential.
- Composition and expertise. Make sure your committees have a diverse and skilled membership. This should include people with relevant experience and expertise, as well as fresh perspectives that align with the committee’s focus.
- Communication improvements. Encourage effective communication and collaboration between committees and the overall board. Set up preferred channels for communication, schedule regular committee meetings and ad hoc sessions as needed, and use an agenda to keep everyone informed.
- Regular review and evaluation. Conduct periodic self-assessments and peer evaluations of committee effectiveness. Identify areas for improvement like meeting structure, communication protocols, or resource allocation and adjust processes accordingly.
- Leveraging technology. Use board portals to streamline communication, document sharing, and meeting management. Try the iDeals Board out to streamline the daily operations of your committees. The features like version control, a centralized data repository, and easy meeting minutes creation greatly improve the committee’s workflow.
Key takeaways
- Board committees are crucial for effective governance, decision-making, strategy planning, and ethical practices.
- Various committees exist, each with specific responsibilities. Most widespread are audit, executive, compensation, technology, and advisory committees.
- These committees allow the board to delve deeper into specific areas, providing them with in-depth analysis and expertise.