If your Board of Directors is functioning at a high level, chances are, its members are doing important work supporting your leadership. The strategic advice and feedback, oversight on the company’s financial performance and recommendations on major decisions are all high powered activities which demand a lot of resources. At a certain point in your board’s life cycle, it may make sense to consider creating board committees.
While required for public companies, board committees can play an important role in a privately-held company by helping the Board “stay nimble.” Each committee has specific responsibilities and focuses on particular areas. Much of the logistical work required for decision-making is done within the committees at meetings held between board meetings. The committee presents a report and/or recommendations to the full board at regularly board meetings. This structure frees up meeting time for important conversations on issues such as strategy, innovation and growth. Committees also allow you to get the most from your director’s experience, knowledge and skill sets.
Typical board committees for private companies can include the following, based on your company’s size and operations:
- Finance/Audit Committee. The finance/audit committee provides financial oversight and helps to ensure the integrity and reliability of financial information. Typical review areas can include budgeting, financial planning, financial reporting, internal controls and accountability. These committees can be particularly beneficial to private companies with shareholders who are not involved in daily operations.
- Compensation Committee. The compensation committee provides oversight of the Company’s compensation plans, including equity compensation, and in some cases may be directly involved in making recommendations for the compensation of the CEO and the senior management team. The compensation committee can help ensure that the company’s compensation plans are appropriate to allow it to attract and retain the best talent in the market.
- Governance Committee. The governance committee can be responsible for recruiting and nominating new board members, setting the board meeting schedule, and a host of other “self governing” issues for a board. This is typically accomplished in close coordination with the CEO.
Boards of Directors in a privately held company can create a competitive advantage. Directors may offer important business connections and supplement internal management skills in ways that can help catapult the company to the next level. However, just as your company has grown, evolved and become more sophisticated, so will your board. Creating board committees could be a significant strategic decision, capable of bearing long-term implications for financial and operational success.
Looking for professional help determining whether your company is structured for success? RKL offers a wide range of resources and expertise in the areas of strategic planning, succession planning, benchmarking, mergers and acquisitions and more. Contact Paula K. Barrett, CPA/ABV, CVA, partner in RKL’s Business Consulting Services Group.