The board of the ABC Corporation formed an ad hoc committee to explore ways to address cyber risk for company emails. The committee completed their research and recommended that the company contract with one of three cyber risk protection companies—each with different packages for protection levels and costs. The board had not yet acted on that recommendation when the company leadership notified the executive committee that they discovered a breach in the email security for one employee. Fortunately, no damage was done, but the incident placed urgency on the issue of making email more secure, and the issue needed to be addressed prior to the next full board meeting.
This is just one example of a situation where an executive committee needs to convene and make a timely, upper-level decision regarding the best interests of the organization.
Executive Board Purpose and Membership
The original purpose of executive committees was to review major issues that organizations faced and make preliminary decisions for discussion and voting at the next full board meeting. Over time, many organizations have made the executive committee a standing committee that meets shortly before the full board meeting and acts as a steering committee. The make-up of executive committees are as individual as the boards they represent. Each organization’s bylaws award executive committees varying degrees of authority and responsibility.
Officers of the board, including the chair, vice chair(s), secretary, and treasurer make up the basic membership of the executive committee. If the organization’s bylaws permit the executive committee to make important decisions in lieu of a full board vote, the executive committee may also include chairs from the finance, quality, and governance committees, and one or more at-large members.
Benefits of Having an Executive Committee
There are distinct advantages for the CEO and the organization in having an executive committee. CEO’s can rely on the executive committee to vet matters that are highly confidential or aren’t ready for formal, full-board deliberations. It’s often easier for smaller executive boards to get together on an emergency or unplanned basis, than in a larger board, where most of the work is done in smaller committees. Executive committees handle routine matters that would otherwise take up the full board’s limited time.
Disadvantages of Having an Executive Committee
Executive committees can become too powerful and elitist, creating a distinct disadvantage to the rest of the board. Executive committee members need to be sensitive to making the other board members feel outcast and excluded. When other board members begin to suspect that the executive board is making all the decisions before they reach the full board, it’s time for the board to perform a self-assessment as a check and balance measure.
Structuring the Executive Committee
What is the ideal structure of an executive committee and its relation to the formation or continuation of an executive committee? What authority should an executive committee ideally be given? In a 2009 report by the Governance Institute, the most common structure is a model where executive boards meet on an “as needed” basis. Here are some of their findings on the frequency of executive committee meeting schedules:
- 7% meet as needed
- 2% meet monthly
- 9% meet bimonthly
- 6% meet quarterly
The rest of the respondents meet only once or twice a year.
The same report outlined the most common executive committee duties. Here’s a snapshot types of duties that the boards that were surveyed reported:
- Review of executive compensation 41.3%
- Board member nominations 19.7%
- Board member selection 11.6%
- Advising the CEO 62.7%
- Emergency decision-making 77.9%
- Decision-making authority between full board meetings 74.1%
- Other 8%
The organization’s bylaws spell out specific duties of the executive committee. Executive committees that also serve as governance or nominating committees are typically responsible for bylaws, policy review, board education, board self-assessment, new member orientation, and board succession planning. These duties come may come with full or partial authority, which will also be spelled out in the bylaws.
About half of the boards surveyed indicated that they give their executive committees full authority to act on behalf of the board. About one fourth of boards stated that their executive boards have some authority to act on certain issues. Just under a fourth of the boards surveyed that they require all executive decisions to be ratified by the full board.
The traditional model of executive committees still works well for many organizations. If it’s not broken, there’s no need to fix it. When board members start to feel overshadowed by a too powerful executive committee, it could be a red flag that it’s time to evaluate the role, responsibilities, and duties of the executive board in relation to the needs of the organization. The self-evaluation should account for how boards operate in today’s business environment. Technology has made it easier to connect through teleconference, video conference, and email than ever before. Electronic tools make it faster and easier to conduct meetings and accomplish goals in a timely manner. Ease of communication among board members means that boards are customizing the structure of their organization’s governance to fit their own definitions of good governance.