The real work and worth of board committees: much maligned, committees can be highly effective means of organizing work. The issue for most boards is not whether to have committees but how to make them most effective.

Author:Carrott, Gregory T.
Position:BOARD COMMITTEE EFFECTIVENESS - Reprint
 
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BOXER REBELS brought the Legation Quarter in Peking under siege in June 1900. The 11 legations and other foreigners who fled to the quarter were to endure almost two months of attacks, casualties and privation until the First Regiment of Sikhs and Seventh Rajputs poured onto the lawn of the British minister one August afternoon.

To bring order to their efforts to survive, the legations set up committees. There was a general committee "whose operations none could fathom," a fuel committee, a food committee, and a sanitation committee. A wag complained of the endless jabbering at committee meetings, but a less cynical observer rhymed that the resulting teamwork was "a wonderful sight; everyone was slaving away with all his might" (Julia Boyd, A Dance with the Dragon).

Committees have been much maligned (see box on page 27), and have been the butt of endless jokes, if not occasional rage. Yet as the story of how the foreign legations responded to the siege illustrates, the fact remains that committees can be highly effective means of organizing work.

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A handful of boards, like those at General Cable and Nash Finch, act as committees of the whole, and praise this structure for the ease of communication and information sharing. They see little need for committees. There's little time spent on committee reports; everyone has access to the facts.

Not surprisingly, perhaps, the chairs of both General Cable and Nash Finch have day jobs in private equity, where boards tend to be smaller, five to seven, and directors often have extensive operating experience in the same industry. Private equity firms also expect directors to devote more time to their portfolio boards than most public company directors must invest.

Yet committees of the whole risk seeing debate too heavily influenced by a minority of directors. When a board has only six or seven directors, two or three can represent a formidable bloc, and such boards may not be suited to larger or more complex businesses. Scheduling 11 directors for a call becomes exponentially more difficult than scheduling six, and there's always the danger that items of importance, which do not seem so important at the time, do not receive the attention they deserve without the guidance of strong chairs.

I would be reluctant to recruit a director without prior experience onto a board that functions as a committee of the whole. They are not great training grounds. Without experience, it is difficult to understand how a board typically functions: the give and take of committees, the protocols and la politesse. Such boards are the province of directors who have already experienced how boards function most effectively, as well as having learned how to manage agendas, debates, and each other.

A few boards try to set a middle ground by opening committee meetings to any director to improve the flow of information. However, some directors report problems when directors who are not committee members ask questions and even highjack the discussion. Such directors have breeched board etiquette, obviously, and need a quiet word, or not so quiet word, from the committee chair. Moreover, if some directors, but not all, "sit in," the committee still needs to report to the board, and can result in some directors having an uneven grasp of committee activities and decisions.

The most common structure of boards with discrete committees for audit, compensation, and governance seems to have evolved not from some abstract ideas of governance but from the demands placed on the board, and also, to some extent, by trial and error. The structure has proven itself. The laboratory of experience argues that boards structure themselves in committees.

Focus on the correct agenda

The question for most corporations becomes not whether to have committees but how to make them most effective, and that begins with a clear charter. Once a charter defines a committee's role on the board, having the right agendas for its meetings heavily influences...

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