Building Committees That Actually Work

One of the most popular governance topics is around the importance of a healthy relationship between board members and their CEOs. Does it feel like peas and carrots — or oil and water? Hopefully the former! We three authors were delighted to take the stage together last year at The Private Company Governance Summit to share our own experiences, and many of you reached out afterwards to share yours.

What we do not often talk about is the committee side of board service. Many boards go without formal committees for too long, assuming the full fiduciary board will be able to effectively manage financial audits, compensation strategy and governance matters as a team. As independent directors, all three of us have been asked to establish and ultimately chair committees, and we have seen firsthand how impactful they can be.

So why are committees important for private company boards? Committees enable directors to dig deeper into key governance issues while still respecting the difference between their roles and those of company executives. With already full (or overfull) agendas for the overall board meetings, committees provide a much-needed forum for more detailed discussions that could easily derail those board meetings. These are topics (think reviewing audit reports or cybersecurity initiatives) that demand this additional time commitment for sufficient understanding and proper board governance.

There is an added benefit of a smaller group of directors examining these issues, especially if the committee includes some board members with experience and expertise in the topic being reviewed. Private company board committees also provide another valuable opportunity for directors to collaborate with company leaders who may join the committee or provide reports to it. This is particularly useful for independent directors who may not have spent as much time with those executives. This increased familiarity with leaders, their styles, their skills and their opportunities for improvement can also benefit the board’s succession planning activities.

Which Committees and When?

What committees should your board establish? While this will vary by company size, industry, strategy and the challenges it faces, the three most common committees are:

• Audit (sometimes in the form of “audit & finance”)
• Nomination and governance
• Compensation (sometimes described as the “people” or “development” committee)

With recent technological changes and increasing uncertainties affecting enterprises of every shape and size, many boards are now adding subcommittees or adjacent committees to tackle topics like risk, cybersecurity, acquisitions and AI. We find that sometimes two of these are combined or included inside one of the above committees.

Many boards view establishing the typical three committees mentioned above as standard operating procedure and do so automatically. The creation of other committees, common or unique, warrants further evaluation. Some questions to consider:

• What is the importance of the subject and its impact to the business? 
• Could the topic be handled by an existing committee? 
• Would the matter be better addressed by the full board? 
• Would expertise and insights from external advisors be more valuable? 
• Is there an industry standard? 
• Would an ad hoc committee for a limited time period suffice? 
• What is the capacity of board members to serve on an additional committee? 
• Does the matter really fall within management’s purview, not the board’s? 
• Is the company willing to compensate independent directors for additional committee commitments?

There is no one right answer, but taking the time to ponder these questions will help an organization determine the appropriate committee structure.

Committee Charters and Composition

After deciding on the need for a committee, the first step is to create a written committee charter that describes its operations. For ease of understanding, a standard committee template should be used for all committees that the board creates. Defining the scope of the committee is important so that members understand their roles and can avoid overlap between committees — or even governance areas falling between the cracks. For example, a common question we hear today is “Which committee is responsible for AI governance?” This will depend on the company and its AI strategy, and the answer may be that one or more committees have oversight for different aspects of AI. What is most important is the board and committees take time to clearly define those charters. Key parts of the charter also include structure, size, meeting frequency and reporting mechanisms.

Committee composition is also an important factor in effectively meeting the requirements of the charter. Director assignments should occur thoughtfully, balancing subject matter expertise with other attributes.

For example, the audit committee is typically composed of at least one financial expert, if not more. Often, boards place new directors initially on the audit committee, since understanding the financial workings of a company is considered to be an effective aspect of onboarding. Conversely, longer-serving directors are often chosen to serve on the nom/gov committee given their deeper understanding of the company’s board culture and individual directors’ skills. Compensation committee roles are almost always held exclusively by independent directors, given their charter to establish and implement CEO compensation. Many a private company CEO has expressed great relief once the compensation committee is up and running, notably because the tricky dynamics of their own compensation are now being managed by an unbiased committee that is leveraging industry data and best practices.

We favor also including directors on committees who do not possess expertise relative to the subject. They bring curiosity that may challenge long-held assumptions or help highlight what information other stakeholders may value. Good governance experience leads to good committees.

Committee Operations Best Practices

The committee chair. This role is multifaceted, requiring strong leadership and diplomacy, as well as an additional time commitment. The director designated as committee chair usually has specific expertise or experience applicable to the committee.

The committee chair ensures all charter responsibilities are met through the creation of both the meetings and meeting agendas, with additional input from the committee. In preparation for meetings, the committee chair serves as the primary point of contact with the relevant executive team members and any external advisors to obtain the materials and advice needed for productive meetings. 

During the meeting, it is the committee chair’s responsibility to ensure the views of all committee members are heard and considered, while maintaining order and managing time constraints. When necessary, the committee chair steers the committee to reach a consensus on decisions. Also, the committee chair identifies the subsequent action items and the accountable individuals before a meeting ends and tracks progress between meetings. When committee session discussions necessitate communication with executive team members, the committee chair does so. 

Frequency of committee meetings. Committee charters typically indicate the minimum number of meetings required per year. Many committees have a cadence of meeting every quarter in advance of the board meeting. As a practical matter, committees meet as frequently as circumstances dictate. Audit committees may meet monthly. Nom/gov committees might meet bimonthly while recruiting new directors. Compensation committees often meet weekly during the annual CEO performance review process.

Of course, board committees do not exist in a vacuum. To be successful, they need to effectively communicate with the overall board. This is best accomplished by sharing clear, concise committee meeting minutes with the whole board, perhaps included in the board book if the timing is appropriate. Committees should also share their recommendations for actions with the board. Sometimes, this means working with the board chair to present proposals for the entire board to vote on. The committee chair has the responsibility to report upon the committee’s activities and recommendations at the next board meeting. 

Putting Committees to Work

There is no doubt that committees are critical to great governance. If you have not established yours yet, it is time to get started.

Look for independent directors who have established and chaired committees and leverage their experience to build the right committee structure. Recognize that your initial committee charters may not be perfect, and that they can evolve alongside the needs of the board and the business. Take advantage of committee assignments as an opportunity for professional development for all directors and C-suite leaders who have not historically had exposure to committee work. Use your committees to take the burden of specific work off the full board while promoting transparency and cross-committee collaboration.

Most importantly, empower your committees to make thoughtful, informed decisions to help accelerate business strategy and goals.