July 11, 2018

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Rose Mercier

What about Executive Committees?

I received a call from the president of an organization that I coach which was in the middle of revising its bylaws. It had been suggested to the president that it was hard for a board to function without an executive committee. She called because she was curious about this suggestion. When the organization’s board had first implemented Policy Governance® a few years ago, it chose to eliminate its executive committee. As I explained at the time, while there is no principle in Policy Governance that states a board cannot have an executive committee, a board should use committees sparingly. I also shared some of what follows.

A board should only create a committee if it is to help the board with its governance jobs; for example, ownership linkage, policy development or assuring organizational performance. It should not set up a committee to help or advise the CEO about operations – human resources, financial management, or marketing, for example – the authority for which the board has delegated to the CEO. Delegating authority for the same thing to two different entities is a surefire way to compromise role clarity and the ability of the board to hold the CEO accountable. Even when a committee supports the board with its work, the board must be careful not to delegate to a committee authority to make decisions that should be made by the board as a whole.

But what about an executive committee? Can’t it help a board with its work? There was a time when having an executive committee was very common. Some of this reasoning persists today.

If a board does not have clear policies in place setting expectations for the CEO and parameters within which the CEO may make decisions, then the board is in the position of having to approve CEO decisions.  For reasons of timeliness, an executive committee was a matter of practicality.  However, if a board is using Policy Governance, it doesn’t make these kinds of decisions, because it has set out clear parameters for the CEO in advance.

When board meetings were predominantly face-to-face, it was believed that it was important to have a smaller-sized executive that could get together in the event of an emergency and make a decision. But today, boards often meet by teleconference or video on a regular basis, and can use these same means to quickly attend to most emergencies. (Of course, you want to make sure your bylaws provide for use of electronic meetings.) In Policy Governance, a board can decide how it will make decisions if an emergency arises and write this into its Governance Process policies. Again, with Policy Governance, because the board writes proactive policies, true emergencies that require a board decision are rare.

An executive committee usually included officers and committee chairs so it seemed reasonable that the committee would be “more in the know” and thus better able to decide what information or decisions should come forward to the board’s agenda. Because an executive committee was seen to be ‘more’ informed, it frequently was given the authority to make decisions on behalf of the board. An executive committee that operates in this way can easily become the de factoboard and board meetings evolve into a series of reports from executive committee members about the decisions the executive has made or become a venue where the board ‘rubber stamps’ executive recommendations. This often alienates non-executive members of the board. It is a principle of Policy Governance that the board has authority only as a whole. Having an Executive Committee that has more or privileged information and makes decisions that it presents to the board either as ‘fait accompli’ or for ‘final approval’ compromises that principle.

An executive committee was sometimes seen by a CEO as a source of guidance or advice. But, just as the board should not create a committee in an area that it has already delegated to the CEO, neither should an executive committee provide advice to the CEO. Such action can easily be interpreted by the executive committee (and sometimes the CEO) as “direction” to the CEO.  It compromises the Policy Governance principle that only the board as a whole provides direction to the CEO, and then only in written policy, or occasionally through an approved and recorded motion.

An executive committee was often seen to be a more efficient forum for evaluating the CEO. It might decide the evaluation method, collect the data, conduct the performance review and then report the results to the board. A board that uses Policy Governance does not need an executive committee to decide how to evaluate the CEO. Performance is evaluated only against the pre-determined criteria in the board’s policies. Throughout the year, the board assesses monitoring reports submitted by the CEO and decides if a reasonable interpretation of its policies has been achieved. At the end of the year, the board – as a whole – considers the aggregated results of these reports as the CEO’s evaluation.

It is not just boards that use Policy Governance that are reconsidering the use of executive committees. The 2015 Chartered Professional Accountants of Canada publication, “20 Questions Directors Should Ask About Building and Sustaining an Effective Board” authored by Elizabeth Watson, Q.C., offered the following commentary: “Although the use of executive committees used to be widespread, today they are much less common. A key concern with executive committees is that they can create a “super board” and marginalize those directors who are not executive committee members. Developments in technology have also reduced the need for such a committee as the full board can come together as necessary between regular board meetings via teleconference and other electronic means. Where executive committees still exist, their duties are usually quite narrow.”

The declining use of executive committees has been observed among corporate boards as well. The Korn Ferry International/Patrick O’Callaghan and Associates governance benchmarking report published in 2006outlined the decline from 56% use of executive committees in 1995, to 9% in 2005. The equivalent report in 2016 does not even mention executive committees.

Fewer boards are using executive committees, but does a Policy Governance board ever have an executive committee? Yes. A board may be required by legislation or regulation to have an executive committee. Sometimes a large board with members living in many time zones may decide to use an executive committee to support the efficient operation of the board as whole. In any instance where a Policy Governance board sets up an executive committee, it needs to give careful consideration to the committee’s terms of reference or charter so that it avoids compromising the principle of board holism and clarity of delegation.

We have many years of experience with many boards, some of which have executive committees. If your board has an executive committee and you are looking to reconsider or review its terms of reference, you may want to connect with one of our consultants.

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