How do you balance the exercise of power between an efficient committee and a collegial board?
The board agendas are overloaded. The idea behind the creation of a committee is to harness the specific talents, skills and time of individual directors to prepare the work of the board on particular areas of concern. The most common committees are: audit, nomination & remuneration, governance (mainly in the US) and risk (mainly in the financial sector).
Board committees provide clear benefits: specialization, efficiency and accountability. But this is at the expense of segregation of knowledge and asymmetry of information with regard to the other directors.
The seriousness of the work and the complexity of the subjects mean that recommendations conveyed by a committee are often considered as quasi-decisions. In addition, the credibility of these recommendations is further enhanced by the fact that committees often enrich their debate by inviting experts from outside the board or the company.
The chair of a committee must discipline herself/himself to report fully and promptly to the board. She/he must remind the board that the committee has limited itself to contemplating the subjects; it is for the board to take over and come to a decision.
A recent survey indicated that more than 50% of the board’s activity takes place in the committees. It is no wonder, then, that one sees directors promoting themselves to the front door of these committees. They are not looking for higher remuneration or heavier responsibility … but for a rich and extensive forum for debate. It is at the committee level that directors experience in a concrete way their dual role of monitoring and advising the enterprise. Take note of this trend but avoid exacerbating it: do not empty the board meeting of all the exciting subjects, leaving only the statutory topics.
Most boards maintain the same committee structure from year to year with little thought given as to why committees are needed and what they do. Boards should consider looking at the current committee structure and reform it. Now, with respect to the committees themselves, they should not take on a life of their own, nor should they overshadow the board.
It is not only the committees that can unburden the board and look into specific subjects. A task force composed of directors may be set up on a particular subject and for a specific period of time. Alternatively, an advisory council composed of external experts can be invited to give its opinion freely on a subject of particular interest. There are, therefore, a variety of advisory bodies that are available to the board to examine the subjects that will then be submitted to its decision-making power.
In any case, let us remember that these bodies are advisory and that only the board can make decisions on any matters. This reminder is important, particularly when talking about the civil and criminal liability of each director, and when considering their various levels of knowledge and involvement in the monitoring of the company.
In short, we will retain two messages, one for the chair of the board, the other for the chair of the committee:
- if you entrust technical and complex matters to a committee, ensure that you reopen these items during the board meeting in order to substantiate the decision-making process;
- when you report to the board, make your presentation attractive and relevant in order to prevent the subject being ratified as a mere formality.
Xavier BEDORET – November 2020
