Build a Better Board

The phrase “effective corporate governance” may conjure up the image of a full board of directors sitting around a table, but committees are where most of the real work of the board happens. Committees are the small groups whose work remains out of the spotlight; they are where people have the opportunity to ask questions, trade-offs can be considered, actual debate happens, and recommendations are formulated to be presented to the entire board. Because they are small groups, committees are also an essential mechanism for getting more input from each individual director. That is why most directors spend far more time in committees than in full board meetings.

The focus on full board meetings rather than committees is unfortunate because it means that there has not been much research on board committees. In our decades of professional experience, we have interviewed hundreds of directors and spent endless hours supporting and participating in board committees. Some of those committees were highly effective, but, unfortunately, plenty were not. So, what sets the effective apart from the ineffective?

The Role of Committees in Effective Boards

Committees are a useful tool for managing and maximizing a boards’ value in several ways. First and foremost, they are the primary platform for director participation and engagement. Full board meetings are not always great places for all directors to contribute fully. There may be different reasons for this, such as the directors’ personalities, lack of an inclusion effort for new members and/or members who represent a minority perspective, or the presence of certain types of board members who are likely to dominate meetings (even if they are ill-prepared). For example, status hounds — people who believe that their own reputation should be sufficient to persuade others — tend to overshadow opposing opinions.

Given that time is usually short in full board meetings, it is far too easy to simply defer to the expert in the room on a given topic rather than engage in debate and ask detailed questions. Committees, on the other hand, offer the space and time to discuss issues more broadly, facilitating greater director learning and engagement.

The decisions boards make affect a wide variety of stakeholders, so every director’s perspective is relevant. Consider the board of a startup where the remuneration committee did a benchmarking study suggesting that the new CEO was substantially underpaid. It was the nonindustry director asking all the right questions about how a pay increase would be received by employees and investors that led to the anticipation and successful management of objections.

In our interviews, we have identified five distinct ways to ensure that board committees reach their full potential.

1. Help new nonexecutive directors find their voice.

One shared experience for directors of all backgrounds is the anxiety of participating in meetings as a new board member — hoping to make a positive impression with the rest of the board, or at least to avoid making a bad first impression. Even those directors who come from high-status backgrounds, such as those with CEO experience, a senior political or regulatory role, or even deep previous board experience, report feeling awkward in those early meetings. Typically, the result is that they make fewer contributions and have less of an impact than they are capable of.

We often see that nonexecutive directors (NEDs) will participate more fully when their committee work is tied to their expertise, because they feel more comfortable and keen to participate. Allocating directors to committees based on their expertise also builds a willingness to participate and challenge ideas constructively within their committees.

It is equally important to set clear expectations for each director about what work is expected from them on each committee in which they participate and to officially invite them to voice their ideas and concerns. This clarity is particularly important in helping new NEDs feel comfortable questioning existing policies and procedures and worry less about potentially offending existing directors.

2. Facilitate the success of NEDs from underrepresented populations.

While all NEDs struggle to fully contribute as they begin, this problem is particularly acute for women and directors from other historically marginalized groups, who are often perceived as having lower status compared with other board members — typically, White men. The most successful boards develop their NEDs by moving them into committee chair roles. Women and other minority NEDs particularly benefit from being asked to chair a committee early in their service, which raises their status among members of the full board, draws them into the center of board work, and accelerates their contributions.

These committee chair roles help minority directors fast-track their contributions to the board by operating in a relatively small space and working on problems they are comfortable engaging with. Starting on familiar ground draws these directors into the work, and they carry that engagement as committee chair into the full board meeting.

3. Use ad hoc committees to address specific issues.

Boards make decisions on broad strategic issues. Sometimes these concern a very specific situation that demands effort, detail, and time to resolve and is incompatible with the normal pace and frequency of board meetings. Where there is acute time pressure on a major issue, boards can create ad hoc committees.

Historically, there were three committees in most corporate boards: audit, remuneration, and nominations. As the world has become both more complex and volatile, most boards have since added a risk committee, and, increasingly, other specialist additions, such as ESG or sustainability, innovation, and technology committees.

One of us found ourselves in an ad hoc committee on the board of a company being targeted by a hostile takeover. The board wanted to elongate the process in an effort to either stay independent or find an alternative buyer. But the longer the process went on, the more risk there was to daily business operations. The solution was to divide the board into a hostile-takeover committee and a regular operations committee that supervised the CEO and the business.

Boards do not need to face existential threats to form ad hoc committees, however. Life sciences startups create science committees to focus the organization on ensuring that a regulatory protocol is followed, for example, or a company might establish an ad hoc technology committee to monitor the overhaul and replacement of its information management systems. Creating short-term committees to address specific issues can be a good way to make use of board members’ contributions in a structured way. Ad hoc committees give directors the resources to work faster and deeper so they can later brief the whole board on their work.

Every board committee needs clear terms of reference, but the ad hoc committees in particular need to be very carefully scoped to ensure clarity, avoid overlaps, and ensure that the board is comfortable with the selection of the committee members.

4. Bring in outside experts.

Diversity of information and perspective is always relevant for board work. The challenge is that, given the limited number of participants in committees, gathering a broad range of perspectives can be difficult. It is likely that there will be topics that require attention in which no board member is an expert — such as AI, sustainability, or government regulations — in which case, external input is required.

Experts and specialists can sometimes be found within the company, but sometimes the search for expertise will extend beyond the organization. For example, one of us recently advised a risk committee on how to identify poor governance practices in other board committees in order to reduce the risk that other committees might fail. This committee needed to go outside the organization because any employee or director from another committee of the board would have an obvious potential conflict of interest.

When a board does need to access outside expertise or perspectives, it feels more time-efficient to send a single director to meet one-on-one with the outside expert and report back. However, evidence suggests that committees and boards often reject outside expertise that challenges how the board currently functions when the conduit is a single source. When that same information is shared with the entire group at the same time, it is much more likely that the committee will collectively accept the new information and work together to address the challenge.

5. Evaluate committee functioning.

Boards should be evaluated regularly. Most regulators recommend an internal evaluation every year and an external evaluation every third or fourth year. These evaluations typically cover boardroom culture, relationships among members and management, the effectiveness of the board’s policies and procedures, the level of challenge the directors offer to the executive team, the quality of meeting discussions, and the quality of decisions. But, strangely, committees are often left out of the evaluation process.

Key aspects of committees and full boards alike, including their cultures and effectiveness, members’ relationships, and the quality of decisions, should be assessed, since they sometimes differ substantially. Committees can reveal different aspects of members’ perceptions, relationships, and power plays. The CEO, other executives, and sometimes even the board chair may be excluded from committees, which results in a dynamic that is different from that of the full board. A good board evaluation recognizes that committees are central to effective governance and ensures that they are functioning well.

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Committees are the underappreciated foundation of corporate governance. Great boards use their committees to engage, develop, and retain their NEDs. They get more input from each director and benefit from better decisions to become more effective organizations. Rather than focusing only on board meetings to understand the quality of effective corporate governance, we encourage those who care about it to focus also on board committees, where most of the real work of the board happens.