The board of directors is a governing body of an organisation that oversees the company’s management and sets strategies for the business. In the case of public companies, board members are elected by shareholders. Typically, the board of directors come together at regularly scheduled meetings. And, for example, some of the topics on the board of directors’ agenda are mergers and dividends, hiring senior managers and setting their pay.
In principle, the board of directors can readily meet to devise a strategic plan and discuss the next steps if any urgent matters arise. But even though this may be the ideal situation, this is simply not realistic for all boards, particularly ones with many members scattered across the country, or world. Because of these logistical challenges, many boards of directors form an executive committee – a subset, or a subcommittee within the board of directors.
The Business Dictionary defines the executive committee as a “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.” The executive committee generally consists of senior-level executives and board officers, but the organisation's bylaws delineate exactly who serves on the executive committee.
The executive committee is a smaller group of individuals chosen by their peers to address urgent issues. This group of leaders often meet with little notice to make decisions about urgent matters that could be consequential for the organisation. For example, there are certain repetitive and standard financial and legal matters that do not require full board meetings. So this is where an executive committee would come in and attend to these issues on behalf of the board. Another example is when the board needs a place to appraise controversial ideas. An executive committee would be beneficial to study important issues and then present the findings and insights to the full board.
The line between the board of directors and the executive committee can be a bit blurry, as the latter is a subcommittee of the former. Therefore, we have outlined seven key differences between boards and their executive committees to help differentiate the two groups for you.
One of the roles of the executive committee is to get together and make decisions quickly when urgent matters arise. However, that is not the executive committee’s only role. It also functions as a steering committee – a committee that provides support, guidance and oversight of progress from a management level. The executive committee also helps make high-level strategic decisions, such as serious high-level workplace issues, organisational oversight and board development.
While the board’s responsibilities revolve around overseeing management and setting and guiding strategy, the executive committee’s responsibilities typically include acting and making decisions on behalf of the board, researching emerging trends, technologies and markets, assessing the CEO’s performance, contributing to board development, managing workplace culture and changing management. These responsibilities are generally laid out in detail by the board.
The board will always be larger than the executive committee since the executive committee is a subset of the board. Generally, executive committees range between three to seven members. By design, the executive committee is small, which helps them arrive at decisions quickly. However, it’s important to bear in mind that a potential downfall could be that a small executive committee may lack the authority to make effective decisions.
As mentioned earlier, an executive committee typically consists of a chairperson, vice-chairperson, secretary and treasurer. If necessary, the board can also appoint any extra members to the executive committee. These members could be senior executives, such as managing directors, board members and sometimes the CEO.
5. Meeting frequency
While the board generally only meets two to four times a year, executive committees have a more regular board cycle. Typically, the executive committee meets at least quarterly, if not every two months or even every month. If there is an urgent matter that requires immediate attention, then executive committees may also have ad-hoc meetings.
6. CEO relationship
Oftentimes, the CEO also serves on the executive committee as a liaison between the CEO and the board. However, the committee usually takes the lead in CEO recruitment. They are also responsible for judging the CEO’s performance and reporting it to the board. Due to close relationships with the CEO, these evaluations need to be conducted with integrity and without bias for the benefit of the organisation.
Despite its role as an advisor to the board of directors, the executive committee is also accountable to the board. The committee should enhance and aid the board’s decision making, providing guidance whenever necessary. The committee’s decision also needs to be endorsed by the board in order to become binding on the organisation.