executive committee – Executive Advisory Institute

February 13 2020

Overview of Board Committees

Fiona Lu Board Committees, Board Structure, Corporate Culture, Corporate Governance Board Committees, board composition, board culture, board diversity, board of directors, board organization, board origins, compliance committee, corporate governance, executive committee, finance committee, risk committee, technology committee, top committees

In the ever-changing digital age, board committee structures must constantly evolve to keep up with changes in capital markets and trade policy. Board members face new challenges everyday regarding the complexities of corporate values, strategy and risk management.

A recent Harvard Law School study tracked board structures since 2013 to examine how S&P 500 companies are using board committee structure to address oversight needs. They found that although boards have been growing to encompass additional committees, the underlying framework has remained largely the same and rely on three key committees– audit, compensation, and nominating and governance– that are required by the stock exchanges. Bank holding companies (BHCs) are required to have one additional risk committee to review their global risk-management framework. Beyond this basic structure, most institutions have one additional standing committee to oversee finances or executive order.

During 2013-18, the portion of companies with at least one additional committee grew marginally from 74% to 76%, and the average number of additional committees remained largely consistent.
Harvard Law School Forum on Corporate Governance

Top Additional Committees

Findings on the top additional committees in 2012-18 are as follows.

Executive Committee: Exercises authority of the board when the board is not in session, except in cases where action of the entire board is required by charter, bylaws or applicable law. (36% of S&P 500

Finance Committee: Oversees capital allocation, financial policies, strategies, capital structure, and annual operating and capital budget. The finance committee may also oversee investments, dividend policy, credit and other market risks, share repurchases, and mergers and acquisitions. (36% of S&P 500)

Compliance Committee: Oversees programs and performance related to legal and regulatory risks, as well as implementation and maintenance of the company’s code of conduct and related matters. The compliance committee may have special focus on compliance in a specific area, e.g., environmental, health, safety and technology. (16% of S&P 500)

Risk Committee: Recommends the articulation and establishment of the company’s overall risk tolerance and oversees enterprise-wide risk management to identify, assess and address major risks facing the company, which may include credit, operational, regulatory, interest, liquidity, investment, funding, market, strategic, reputational, emerging or other risks. The risk committee reviews and discusses management’s assessment of the company’s enterprise-wide risk profile. (11% of S&P 500)

Technology Committee: Oversees and assesses the company’s technology profile and related strategies and makes recommendations regarding the execution of technology enablement formulated by management. Technology committee members address opportunities and risks regarding technological strategies, including aspects of cybersecurity. (7% of S&P 500)

Public Policy and Regulatory Affairs Committee: Reviews significant legislative and regulatory initiatives by state, federal, or foreign government authorities, as well as other public issues likely to affect the company and its shareholders. They oversee the development of company policies in response to these developments and may have a related compliance function. (7% of S&P 500)

Corporate Responsibility and Sustainability Committee: Reviews policies and practices related to specific public issues of concern to shareholders, the company, its employees, and the general public. They maintain oversight of corporate responsibility, environmental sustainability, diversity and inclusiveness, and reputational risk. (6% of S&P 500)

Finding the right committees for your specific company depends on the company’s unique needs and must address the company’s major concerns in a forward-thinking manner that will motivate new strategic thinking. However, some common trends that span across all industries is a focus on technology and sustainability as we move into the new decade. Keeping these trends in mind when considering the most effective committee structures will be a smart move for companies who want to succeed in today’s hyper competitive, highly disruptive markets.

May 27 2020

Choosing the Right CEO

Fiona Lu Board Strategy, CEO, Corporate Governance, Executive Management board of directors, board strategy, CEO, corporate culture, corporate governance, Corporate Roles, executive committee, executive management, senior management, succession planning

One of the integral responsibilities of the board of directors is choosing the right CEO for the company. Directors must carefully weigh and discuss this decision, keeping in mind the company’s performance needs and actively planning for succession. The integrity of the CEO is essential to a strong company relationship and enabling the board to meet its expectations. The board of directors and the CEO work closely together in monitoring and managing the company; thus, boards must wisely choose a CEO who exhibits the same company founding principles and with whom they can work well with. If done successfully, this can lead to a wonderful symbiotic relationship of strength and leadership. However, if done poorly, the lacking communication and trust between a CEO and the board can present the downfall of a company.

Qualities to look for in a good CEO

A strong and capable CEO is one who is committed to the long-term value growth and success of his/her company, as well as someone who is receptive to the robust oversight of the board and willing to collaborate in effective teamwork. A well rounded set of analytical skills, social awareness, and communication skills is a key criteria to selecting qualified candidates. Beyond this, the board must have a well understanding of the company’s development needs and future direction in order to identify executives who will be able to fulfill their role amid these complex and ambiguous dynamics. Being able to forecast the challenges that potential CEOs may face is a helpful component in recognizing areas for improvement early on and establishing benchmark goals. Addressing these future challenges head on will provide boards and executives ample time to assess the readiness of each candidate, develop workshops, and establish mentor relationships to guide the company towards future success.

In addition to setting company-tailored criteria for CEOs, boards should maintain awareness to external benchmarks for executive success. Understanding how other company’s executives are performing is a good way to assess the relative strength of internal candidates. According to The Conference Board, between 2013 and 2016, the proportion of “internally” appointed S&P 500 CEOs grew from 76% to 86%. It is clear that boards are increasingly placing an emphasis on internal promotions, so it is well advised for boards to have an accurate and up-to-date overview of where their internal candidates stand against proven executives outside of the organization.

Finally, the board should include the incumbent CEO’s opinion during this consequential decision making process. Talking to the CEO about their experience in the role, what challenges they faced, and what areas they see for improvement moving forward is a good method for addressing future criteria needs. The incumbent CEO plays the important role of grooming succession-prepared executives at the senior management level and will thus likely have suggestions for who they think is a good fit.

Long-term succession planning

It is never too early to start thinking ahead about what the next CEO’s profile should look like. With the ever changing market and social landscape, an organization’s needs are also constantly evolving. Wise boards will try to foresee these changes and predict what the next step in company leadership is. What will the future of the company look like? What leadership skills and personality traits will be advantageous to navigating that future? How will or should company culture change? What kind of leader is able to promote that change?

Discussing these possibilities and building a consensus on a general criteria for the next CEO is an important step that facilitates a smooth transition process. Having a broad leadership profile in mind will help boards to develop needed leadership qualities among internal candidates and keep an eye out for executives whose strengths match these needs. Furthermore, it will prevent companies from falling into the trap of selecting repetitious candidates reminiscent of the incumbent CEO.

If concerns about the current CEO’s conduct, ability, or actions arise, they should be brought up and discussed immediately to determine if an early succession is required. Thus, having a sense of strong backup candidates is a smart way to stay prepared for any leadership scandals, emergency vacancies, or interim management. This ensures that issues with the CEO’s performance are caught early on and do not manifest in the company’s performance.

Getting to know the management team

Developing a forward-looking approach to seeking executive talent involves getting to know the senior management team. Directors and managers are both well-served by maintaining a mutual relationship of trust and understanding. Directors are endowed with a clear insight into what it takes to conduct key business decisions, and managers benefit from the ready ability to draw upon the independent judgement of directors.

Getting to know management comes in various forms, from conducting executive meetings to annual talent reviews to regular outside engagement. Staying involved with management on a continual basis will enable board directors to observe patterns of performance, identify the strengths and weaknesses of executives, and develop a more tailored approach to succession planning. It also gives boards the opportunity to expose senior management to opportunities that encourage entrepreneurship, leadership, and intelligent risk-taking in order to establish preparation for a healthy “succession culture.”

An assessment of the best succession planning processes noted that the top companies all exhibited several key commonalities:

Continual discourse between board members and the CEO to discuss the future outlook of the company and the needed skills of likely successors
Frequent exposure of senior levels to the board and fitting outside board service opportunities
A simultaneous top-down and bottom-up approach in which all levels of the organization are equipped with the right tools and training for advancement while maintaining an eye out for successors

As long as boards fulfill their objective oversight duty, the board and management teams should operate hand in hand and build upon each other’s roles to create a robust succession framework that fosters the company’s long-term success.