If you are interested in good corporate governance, then the role of the Executive Committee should be eliminated. Here’s why:
Executive Committees are a sign that you have too many Directors.
One of the most common excuses Boards use to justify their Executive Committee is that with so many members it is impossible to get things done; or done quickly. If that is the case, then your Board has too many Directors. Instead of putting corporate governance in the hands of a chosen few, reduce your Board size and ensure every Director stays involved.
Executive Committees are bad for governance.
The Role of any corporate governance Board is oversight. The primary elements of oversight include risk, strategy and CEO performance. Executive committees lack the size to include all the skills required for good oversight. Even worse, they suck power away from other qualified Directors not fortunate enough to be included.
Executive Committees exert too much influence on Board and corporate direction.
The longer an executive committee exists, the more involved it will become in governance and other elements of corporate direction. Why? Because most Executive Committee mandates are not narrowly defined and it’s easier to make decisions at the Executive Committee level than at the Board. Over time, Executive Committees accumulate substantial Board power and influence, essentially setting direction for the Board. It is very seldom an Executive Committee decision is overturned.
Executive Committee decisions are less objective.
Loss of objectivity is the biggest enemy of good governance. Yet Board objectivity is substantially reduced when key decisions rest in the hands of a select few. By sucking up influence and sucking away power from others, Executive Committees decisions are increasingly less objective than what a full Board can provide.
Good Governance Means Questioning the Role of Your Executive Committee
The lessons here aren’t just theoretical. A shockingly large number of organizations have Executive Committees simply because they’ve always had them. Little thought has gone into the loss of governance capability and increased risk that a governance committee entails. When confronted with these challenges few Executive Committees can demonstrate any special need beyond ‘convenience’.
Convenience in corporate governance is bad for everyone.
Jim Crocker is the founder and current Chair of Boardroom Metrics. He is an experienced Director, CEO and Consultant to public, private and not-for-profit organizations. Jim coaches Boards, CEO’s and Leadership teams on strategic planning and governance effectiveness.