This article is Part II of V in Nancy Durand’s board governance series: How to Build an Effective Board of Directors. Read Part I, which discusses the role and duties of the board and the pitfalls of board micromanagement of staff.
The time is 8 p.m. After a long day, you are seated in a board meeting that began two hours ago. You look down at the agenda only to discover that the board is still discussing the third item of a 15-item agenda, and the first two items were the roll call and approval of the minutes of the prior meeting.
The debate on the issue has dragged on, and the only thing the board can agree on is that it lacks sufficient information to make a decision. By the end of the board meeting, a lot of time has passed and little has been accomplished.
Long, frequent and inefficient board meetings are telltale signs that the board does not have an effective committee structure in place to execute its oversight responsibilities. This article, Part II in the board governance series, will explore how an effective committee structure can help streamline and improve the efficacy of board meetings.
The power to delegate
The board is allowed to delegate to committees a myriad of board functions. It may direct a committee to develop a new policy, oversee a particular project, hire a chief executive officer, thoroughly research a particular issue and engage closely with staff on a particular topic on behalf of the board. With limited exceptions (discussed below), a committee can be empowered to do just about anything the full board can do at a board meeting.
Matters that are too complex or time-consuming to be handled by the entire board during a single meeting should be delegated to an appropriate committee. The board, by committee, can deliberate on key issues with focused attention, capitalizing on directors”™ specific skills and interests. This will, in turn, limit board meetings to meaningful debate and consideration of committee recommendations.
Types of committees
New York nonprofit law recognizes two general types of committees: “committees of the board” and “committees of the corporation.” The differences between the two are significant.
Committees of the board have the power to make certain binding decisions on behalf of the organization to the same extent as the full board. Because of that power, there are specific rules about the structure and composition of committees of the board.
For example, a committee of the board must consist of at least three directors, and cannot include nondirectors. The members of a committee of the board must be appointed by a vote of the majority of the board, with limited exceptions. Committees of the corporation, on the other hand, have no power to bind the corporation and may consist of nondirectors. Members are appointed or elected in the same manner as officers are selected.
Committees are also characterized by their duration as either a standing committee or a special committee (also known as an ad hoc committee). Standing committees are permanent. Typical standing committees include an executive committee or an audit committee. Special committees are temporary; they are created for a specific purpose and dissolve once that purpose is accomplished. A special committee may be created, for example, to oversee litigation, select or recruit a chief executive officer or explore the viability of a new project.
The following are examples of typical committees and their general functions:
- Executive committee: generally comprises the board officers, handles issues that arise in between board meetings, liaises between the chief executive officer and the board.
- Audit committee: reviews and evaluates the integrity and accuracy of the organization”™s financial statements, reviews audit and accounting policies and internal controls, and selects audit or accounting firm.
- Nominating committee: evaluates the composition of the board and nominates people to serve on the board.
- Compensation committee: researches comparable salary information, evaluates certain staff and decides on levels of pay increases.
- Development committee: reviews and evaluates the organization”™s fundraising strategy and engages board members in individual fundraising roles.
Be careful not to take a one-size-fits-all approach to committees. The board must evaluate the needs of the organization and determine what committees might facilitate the board”™s work and whether the existing committee structure is meeting the needs of the organization.
An effective board uses committees strategically so that the heavy lifting of board work can be accomplished in smaller work groups in between board meetings, rather than during board meetings.
Nondelegable duties
It is important to note that the delegation of board functions to a committee does not relieve the board or individual directors from their fiduciary duties and responsibilities. In addition, no committee of any kind has the power to perform any of the following functions, which may only be performed by the full board:
- Filling vacancies in the board or in any committee
- Fixing the compensation of directors for serving on the board or on any committee
- Amending or repealing the bylaws or adopting new bylaws
- Amending the certificate of incorporation
- Amending or repealing any resolution of the board which by its terms shall not be so amendable or repealable
- Electing or removing officers and directors
- Approving a merger or plan of dissolution
- Authorizing or recommending to members action on the sale, lease, exchange or other disposition of all or substantially all the assets of a corporation
- Submitting to members any action requiring members’ approval
Moreover, the powers of every committee are limited by the will of the full board. Every committee serves at the pleasure of the board and can be dismantled by the board at any time.
Key takeaways
- The main role of the board during meetings is to make informed decisions affecting the organization. When the board needs to dive deeper into a greater understanding of a particular issue or to manage ongoing oversight activities, it should delegate those tasks to an appropriate committee, which will then report back to the full board.
- When creating a committee, the role, responsibilities, powers, objectives and composition of the committee should be clearly stated in a committee charter. The failure to properly form a committee may render any action taken by that committee invalid.
- The board”™s committee structure should take care to avoid any duplication of work, either among committees or with any work group established by staff.
- To the extent possible, the chair of the committee should have some expertise or experience in the subject matter of the committee”™s focus.
- Finally, the board should periodically review its committee structure to ensure that it continues to meet the changing needs of the organization.
Nancy Durand manages the nonprofit and tax-exempt organizations practice group at Smith Buss & Jacobs LLP. She joined the firm in 2016 and represents a broad range of tax-exempt organizations, including 501(c)(3) and 501(c)(4) organizations, nonprofit housing entities subject to the New York Not-for-Profit Corporation Law, charter schools and religious organizations.
Nancy represents nonprofit entities in connection with board governance issues, directors”™ duties and responsibilities, corporate best practices, government investigations and inquiries. She has extensive experience conducting internal investigations on behalf of clients, including those involving alleged misconduct, and also provides crisis management advice and support to organizations.
Nancy”™s pro bono practice focuses on education and equal access to justice. She is a New York State Bar Association Empire State Counsel honoree, in recognition of her pro bono service. Nancy has also been recognized as a Rising Star by Superlawyers.
