Executive Committee Operations

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

When I am working with a board of directors, one of my first areas of focus is the Executive Committee. This committee is a key to effective operations because it is essentially in service to the Chairman – a resource that help formulate and vet strategies for board management and operations.

It is important that the Executive Committee contain members with diverse views. The decisions that it makes will affect all the other committees, the board as a whole and either advance or restrict the board’s ability to meet its fiduciary responsibilities to the shareholders. I recently gave a presentation on the context and functioning of the Executive Committee. My focus was on its oversight and nominating responsibilities. Here is some of what I said:

Context of the Committee

The board of directors of a corporation has the responsibility to the shareholders of the corporation for governance practices that enhance shareholder value. Directors often elect to establish advisory committees to assist in researching issues, conduct assessments, plan for succession, establish and monitor ethical standards, review corporate finance and performance, and act in an advisory capacity on corporate governance models and structures.

Focus of the Committee

One key committee a board should establish is the Executive Committee. The Executive Committee is usually responsible for overseeing the elections for the Executive Board positions and assumes the responsibilities for drafting Constitution and By-Laws updates and amendments. The Committee should be composed of at least three members and two of the three members should be independent directors as determined by the board of directors.

The Executive Committee should generally have the following responsibilities defined in its charter:

• Develop annual Executive Board ballot
• Establish voting and/or selection criteria
• Annual By-Laws assessment
• Report By-Laws assessment to Executive Board and other relevant advisory committees
• Report or present final draft of By-Laws to board of directors for final approval

The Executive Committee should work with the Succession Committee on leadership development strategies as it conducts its duties in selecting candidates for the Executive Board. The Succession Committee generally identifies talent though an annual leadership assessment process. The Executive Committee can assist in the development of the director’s leadership talent and use this assessment in identifying potential candidates for the Executive Board.

The Executive Committee should be responsible for structuring and monitoring the process of elections to Board. The duties of the committee should include:

• reviewing annually the voting/selection process for the candidate election
• developing a slate of directors to recommend to the board
• developing a process for nomination of other directors not a part of the slate
• designating the location the votes should be delivered to
• setting the date the ballots will be counted
• establishing the committee responsible for counting and certifying the results
• establishing the mechanism for announcing the new board members

When the election is complete and prior to the announcement of the new Executive Committee, the Audit Committee should review the election process to ensure the independence of the results and the adherence to the rules.

The Executive Committee should also assess corporate By-Laws. The board of directs authority is governed by the corporate By-Laws. The By-Laws should be reviewed and updated to reflect the current operating environment. The Executive Committee should conduct an annual assessment of the By-Laws and report to the Executive Committee the recommended changes, if any. The Board should review the assessment and approve the changes it deems necessary.

Many board committees will overlap in the assessment process required for good governance. In the post-Sarbanes-Oxley era, these redundant reviews and assessments are necessary to ensure no one person or committee has full control over the affairs of the corporate board of director or key committee functions or composition. Corporate ethics at many companies dictates even stronger checks and balances on power than Sarbanes-Oxley regulation.

A function and effective Executive Committee is one more example a how a corporate board can ensure the stockholders of the company ethical standards governing the affairs of the company. Regulations certainly play a part in how a company governs itself, but many companies include checks-and-balances and other good governance issues in their corporate strategy to further assure the stockholders of their compliance with the important business of enhancing shareholder value.

© Dr. Earl R. Smith II

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Related Articles:

• Leadership Development – Good Board Governance
• Corporate Board Dangers
• Defined Responsibility – a Key to Effective Corporate Governance

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