Board Committees can be useful
Board Committees can be a useful and efficient tool for large boards to address specialist areas where only a minority of the board has the expertise to deal with them.
They save wasting the entire board’s time from being mired in the detail of, say, the organization’s financials or health and safety.
Committees can also give more intensive scrutiny to specific aspects of a board’s duties.
Thus, complex issues can be explored in greater detail.
The Board remains liable for Committee decisions
However, a committee generally only has the constitutional power to make recommendations for the full board to ratify as the liability for any committee’s actions remains with the board.
Consequently, any significant recommendations forwarded to the full board should include sufficient background information so that board can make an informed decision on whether to ratify the recommendation.
Board members are often encouraged to avoid re-litigating matters considered by subcommittees so that the time and energy expended by the committee is not wasted. As a result, subcommittee recommendations are often ratified with hardly a murmur.
Committees can slip through potentially controversial decisions without adequate board scrutiny
Not every matter warrants close board scrutiny.
It becomes a matter of judgement as to what is a significant matter. One way to assess this is to consider whether the decision carries reputational or financial risks, or both.
As with all matters of trust, it can be abused.
Potentially controversial matters can be obfuscated with
- A too-brief description of the recommendation,
- The recommendation is buried amidst many other pages of board papers,
- The description in the committee minutes omits even why the matter was considered and what factors were taken into consideration in arriving at the recommendation.
In this way, the board is unable to scrutinize the work of its subcommittees and the subcommittee has in effect hijacked the board, at least in that particular matter, anyway.
The line between governance and management can become blurred in board committees
Committees often become exposed to a lot more operational detail than the full board. The line between governance and management matters can become blurred and so this must be carefully managed.
The line can be further blurred if attending managers are made full committee members and each is given a vote.
Often the concern about the demarcation between governance and management centres around board members unhealthily encroaching on what should be operational matters.
But with executive committee members having voting rights then the composition of the committee must also be carefully considered, because the majority of committee could conceivably be composed of executives.
When combined with the idea that a committee can slip its controversial decisions through under the noses of the board without it being aware of it, the executives on the committee has in effect hijacked the board.
This doesn’t mean that the executive are necessarily malevolent or Machiavellian they may be genuine and have the organisation’s interests at heart.
But an important role of the board is to provide independent and unbiased oversight, and this role can be compromised when executive representation on board committees is too high and they are exercising voting power as if they are board members through their committee membership.
Board committees can be beneficial but they can also be abused
Especially for large boards, board committees can be beneficial. They can save time and allow complex matters to be considered in more detail.
But board committees must be very aware of what matters are significant and carry a disproportionate risk to the organisation.
If a decision is likely to be controversial then this is a clear signal that the matter is significant. It can be tempting to obfuscate the matter to avoid conflict.
The attention of the board should be drawn to significant matters so that the board can adequately scrutinize the recommendation so that an informed decision can be made.
The executive team shouldn’t become de facto board members through their voting power in committees.
Board committees should always remain subordinate to the full board. The dog must wag the tail, not the other way around.
