Build a Better Board

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Build a Better Board

By Randall S. Peterson and Pedro Fontes Falcão | MIT Sloan Management Review | September 26, 2024

Extractive Summary of the Article | Listen

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.  But not all committees are highly effective. So, what sets the effective apart from the ineffective?  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.  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.  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.
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.
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.
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. 

2 key takeaways from the article

1. 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.  
2. But not all committees are highly effective. So, what sets the effective apart from the ineffective?  Five distinct ways to ensure that board committees reach their full potential:  help new nonexecutive directors find their voice, Facilitate the success of NEDs from underrepresented populations, Use ad hoc committees to address specific issues, Bring in outside experts, and evaluate committee functioning.

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Topics:  Board of Directors, Teams, Committees