Is Executive Committee Still Helpful for Governance Discipline

Any add-on organizational structure should keep digital flow via the right set of principles, but not adding another hierarchical layer between the Management and the Board.

According to businessdictionary.com, an Executive Committee (EC) is the group of directors appointed to act on behalf of, and within the powers granted to them by, the board of directors. Typically it consists of a chairperson, vice-chairperson, secretary, and treasurer. From both management and governance perspectives, Is EC helpful, or just adding the other layer of bureaucracy to the already complex organizational structure?

Executive Committees (EC) can be helpful in certain circumstances. The world is rarely black and white, mostly gray. It is not necessary to have an EC, but it could be very helpful. Some Executive Committees have been given the role of performance management of the senior staff officer, and may also act as a search committee when needed. Some plan annual board retreats, and advise the chair on the board agenda (all directors and board committee chairs should be asked for input each time). They do many things that boards do, including advice to management on achieving expectations, support of the acquisition of resources such as fundraising, connecting management to resources they may need from other organizations etc, they may support management achieving expectations but cannot conflict with the board's fundamental responsibilities. So to assess its practicality, better ask the set of questions: What is the mission you intend to accomplish? What would be the most effective leadership structure for accomplishing that? What structure would ensure the organization's leaders are actively ensuring the organization is walking the talk of its values? What structures would ensure the leaders are actively connecting with others who are seeking to accomplish the same goals? What structures would ensure active leadership in developing and monitoring programs to accomplish the mission? Instead of reacting to problems, such questions can guide organizations to create what is possible - strong leadership for accomplishing their mission, aiming at what you do want vs. reacting to what you do not want.

EC should not be another hierarchical layer between the Management and the Board. Just one example, a Budget Review could be done in greater details by the EC so that after the budget presentation by Management, the EC could raise a few issues which might have been noted by the EC while doing the review and which would never have been looked at by the full Board. This does not have to be a criticism of management, but it is bringing different points of view looking at the same issue, which could have been buried in the budget and because management is working in the branches and the trees, they sometimes forget to look at the color of the forest. Budgets should be reviewed rigorously and granularly with no concern as to whether management likes this or not. But this should be a function of the full board. If the board is not capable of doing this then the wrong people are on the board.

All committees should be advisory to the board including an executive committee. Fundamentally a board has two responsibilities: Deciding what the expectations of management are and deciding whether management is achieving expectation. A board of directors duty to shareholders encompasses the need to effectively manage stakeholder issues and values so they do not become a risk to shareholder values. If stakeholder values and issues are well managed they should become enhancements to shareholder values. And shareholder values do not begin and end with financial profit. Smart corporations and shareholders know that they live in this world too and focusing only on short-term economics can lead to negative values that may outweigh finances in the long-term.

Organizational structure is situational driven. ECs could signal management influence of a board. Their original purpose is to meet when the board could not, but with the robust digital technology, this purpose has been addressed. The most boards are small enough to meet frequently and easy to get together via technology, the old role of an Executive Committee acting for the board is disappearing. The downside to an executive committee can be that it creates a two-tier board. Still, EC could be helpful in certain circumstance and certain organizations, jus keeps the end goal in mind, to improve governance effectiveness and business maturity.

Posted in: Board Room,GRC