There aren’t very many differences in the responsibilities of board committees between public and private companies. The greatest difference is that publicly listed companies are more heavily regulated than private companies. Regardless, the same principles of good governance apply to private boards and committees as to public boards and committees.
All private companies should have at least three standing committees — audit, compensation, and nominating and governance. Many private companies also form executive committees. Beyond these four committees, private companies may form other standing or ad hoc committees based on their needs.
A private company board of directors should expect all board directors to serve on at least one committee. Committees devote their time to doing research, solving problems and planning in a particular area of governance. Each committee chair should be in communication with the board chair and bring matters to the full board’s attention through reports.
Advances in technology and the fast pace of corporate relations can be difficult for board directors to keep up with. Diligent Corporation designed board management software to be a valuable tool for private company boards of directors’ work. Diligent Boards is a board meeting management system that includes a feature for granular permissions. This means that board directors can only access the parts of the board portal that they need to access and will be denied access to other parts.
Private Company Boards of Directors’ Committees
Following is a list of private company boards of directors’ committees and their responsibilities.
Audit committees have many important tasks. They’re responsible for overseeing financial reporting and disclosures. Their oversight responsibilities extend to overseeing the external auditor, overseeing regulatory compliance and overseeing the internal audit function. Also, audit committees monitor accounting policies and internal control processes. Audit committees are also sometimes involved in discussions regarding risk management policies.
The National Association of Corporate Directors (NACD) reports that compensation committees meet about six times a year for just under three hours.
Compensation committees are responsible for setting the CEO’s compensation and advising the CEO on compensation issues for the other executive officers. In relation to the CEO’s compensation, compensation committees determine the appropriate structure for compensation and benefits, set performance-related goals for the CEO and monitor the CEO’s performance against targets. Compensation committees may hire consultants on executive compensation as necessary.
Nominating and Governance Committee
Nominating and governance committees meet an average of about eight times per year for just under two hours. Boards customize the duties and responsibilities of nominating and governance committees according to their needs.
Nominating and governance committees identify, recruit and recommend individuals to serve on their boards. This type of committee also sets the governance standards for the company, according to best practices for governance. Nominating committees manage the executive director evaluation process and they may also manage the board evaluation process unless the executive committee is charged with doing so.
Succession planning is part of best practices for good governance. This is to ensure that the board has continual quality of leadership. Nominating committees work diligently all year to prime and prepare recruits and candidates to present to the board. This committee must be mindful of the importance of diversity on the board and of forming a well-composed, qualified board. It’s considered best practices to be forward-looking in seeking board candidates. Nominating committees should consider the needs of the company in the future as well as their needs today.
As needed, nominating committees may hire consultants or headhunters to assist them in the search process.
A private company board of directors may opt not to have an executive committee. Medium-size and larger private companies may find it beneficial to have an executive committee because the duties they perform can be of great value to boards.
Executive committees usually comprise the board officers and the CEO or executive director. One or more senior executives may also serve on an executive committee. One of the primary benefits of an executive committee is that it acts as a steering committee that prioritizes the issues that the full board should be discussing, which results in efficiency for busy boards. Executive committees often have the authority to act on behalf of the full board in times of crises or emergencies.
Oversight is one of the primary duties of executive committees. Such committees oversee board policies on issues like ethics, cybersecurity, quality management, regulations and compliance, and human resources. Also, executive committees oversee ad hoc committees to ensure that they complete their objectives.
Executive committees are composed of senior leaders who usually take the lead on board development, mentoring and annual board evaluations. Members of the executive committee are charged with evaluating the board’s progress toward their strategic goals and providing the full board with periodic updates.
Finally, executive committees are responsible for ensuring the board follows good governance practices. Committees should encapsulate their discussions in committee meeting minutes and submit them to the full board in a timely manner.
As every private company board of directors has different needs, they have the liberty to form as many or as few specialized committees as they need to complete their work responsibly.
According to the 2013 Spencer Stuart U.S. Board Index, about 30% of private companies have finance or investment committees. Just over 10% of private companies have corporate responsibility committees. Less than 10% of private companies have committees for strategic planning; risk management; environmental policy; science and technology; legal, ethics and compliance; mergers and acquisitions; and human resources.
Final Words on Private Company Boards of Directors’ Committees
Committee work is a necessary part of operating a private business. More than ever, it’s important for board committees to be able to communicate and collaborate in complete confidence. As a cost-saving measure, private boards may be inclined to use personal or business email accounts and run-of-the-mill file-sharing apps when conducting committee business. Doing so places the company at a huge risk of a data breach. Diligent Boards and Governance Cloud are the modern solutions for board management software to ensure that private board committee work remains only with authorized users. Board committees work hard. Boards should protect their efforts with a fully integrated board management solutions from the Modern Governance company, Diligent Corporation.