Executive committees: the stealth board body; They typically operate without the laser focus given to the audit, compensation, or governance committees. And their place in the governance structure varies widely.

• Author: Dalton, Dan R.
• Position: BOARD PRACTICES

UNDER THE GUIDELINES established by the listing exchanges (NYSE, Nasdaq) and those mandated by the Sarbanes-Oxley Act (SOX), standing committees of boards of directors must meet certain requirements. The audit, compensation, governance, and nominating committees, for example, must be totally composed of (and chaired by) independent directors. Such committees also should have written charters in which their mission/purpose, authority, and roles and responsibilities are set forth.

Yet there are other board committees that are not required to adhere to these guidelines, including executive, finance, investment, environmental and public policy, planning, M & A, and technology committees. It should be noted that few companies have any of these committees, and rarely would they have more than one. The clear exception among these is the executive committee. In fact, 46% of the Fortune 500 have executive committees. Notably, less than half of these (42%) provide a written charter.

Moreover, we are not familiar with any general source that one could consult for guidance on the establishment of a best-in-class executive committee--its membership, efficacy, authority, and roles and responsibilities. There are a host of issues for which there is absolutely no consensus that might be constructively considered in evaluating such committees.

Mission and purpose

The mission of executive committees is essentially standard. Altria's language provides a typical example: "The Executive Committee has authority to act for the Board during intervals between board meetings to the extent permitted by law." While other statements are more extensive, they capture the same elements. Consider Dow Chemical's: "During the intervals between the meetings of the Board of Directors, the Executive Committee ... shall possess and may exercise all of the powers of the Board of Directors in the management and direction of the business and affairs of the Company to the fullest extent allowed by the General Corporation Law of Delaware and other applicable regulations and statutes." Other than in the Mission/Purpose sections of executive committee charters, there are few common themes.

Membership and composition

Based on our review, membership and composition standards for executive committees are anything but standard. We found one company (Lehman Brothers) with only two executive committee members. In several other companies (e.g., Lockheed Martin, Valero, Wal-Mart), the executive committees could have, pursuant to their charter rules, consisted of two members, although there were more. Setting aside Lehman Brothers, the minimum number of executive committee members we observed was three, with the distinct majority (96%) of executive committees comprising between three and seven members. The composition of that membership, however, takes many forms.

In some cases (e.g., Altria, Bell South, Coca-Cola, Georgia-Pacific, Johnson Controls, Rite Aid, St. Paul Travelers, TJX, United Air Lines, WellPoint, Weyerhaeuser), the executive committee is appointed by the full board and serves at its pleasure. Other companies are more directive and note, for example, that the CEO and chairperson of the board must be a member of the executive committee. Usually in such cases, this person will chair the executive committee as well (e.g., Abbott Laboratories, Aetna, Archer Daniels Midland, ExxonMobil, Raytheon, Sprint Nextel, Target, UnitedHealth).

Interestingly, in a few cases the CEO is not a member of the executive committee (e.g., Delphi, WellPoint). At Delphi, Intel, and Tyson...