Transcript of One Question Podcast – Strategies to connect the Board and its Committees:
Welcome to the One Question Podcast from O’BRIEN / Governance Design, who specialise in corporate governance for the public and not-for-profit sectors. I’m Will Francis, and in each episode I ask Trish O’Brien a different question about corporate governance. Hi, Trish. How are you doing?
Hi Will. I’m fine thank you very much. How are you?
I’m very good, thanks. So, I believe that in this episode, we’re going to be talking about committees of the board. Is that right?
Yes. An area of governance that we find often comes up in both the public and not-for-profit sectors is a kind of lack of connection between boards and the sub-committees they establish. It’s sometimes an overlooked part of governance, so we thought it was worth dedicating a podcast to it.
Okay. So why do boards set up sub-committees in the first place?
Two main reasons probably why boards set up sub-committees. One is because they have to, in some cases, and the other is that sub-committees can help them be more effective.
Okay. So first of all, when would they have to?
One example of having to is particularly in the public sector, when you’re in receipt of public funds, there’s an expectation that boards will set up an Audit and Risk committee. And this is the committee that amongst other things, it oversees financial matters, makes sure that public funds are being spent as they should, and that committee would generally have board members on it, but also independent members to make sure that there’s objective oversight. So that’s an example of having to set up a sub-committee and there’s detailed guidance on how audit and risk committees should operate and how they should report to the board. In this podcast, we’re a little more focused on sub-committees that the board chooses to establish, to make the work of the board more effective.
I see. So tell me more about the actual purpose of these sub-committees?
Well, we’ve talked before about the wide range of responsibilities that boards have, and we’ve said that those responsibilities span strategy, corporate governance and fulfilling stakeholder responsibilities. That’s how we’ve tried to categorise those responsibilities. Quite often, a board will set up a sub-committee, or sub-committees -they could have a number of these – that will focus in more detail on some aspect of what the board is required to do.
Okay. And so, when boards set up these committees, can they just transfer over their responsibilities to these committees?
The short answer is no, they can’t. They may set up a committee that can make decisions on behalf of the board or they might set one up that just gives the board advice or makes recommendations to the board for final decision. But in fact, either way, the board remains responsible for any decisions that are made, whether it makes those directly or via a sub-committee.
I see. So the board sets up these sub-committees and sometimes they can make decisions for the board and other times they make recommendations to the board. That sounds okay, so where do problems arise?
Well, often we see that when the board sets up a sub-committee, it can become kind of disconnected from the work of that committee. And that then represents a risk for the board. So, the board can’t actually exercise oversight if it’s not engaging with its sub-committees. And again, just to be clear that the board remains responsible for all decisions, even those that are delegated to its sub-committees to make.
Okay. So why do you think this disconnect is happening?
Where we’ve experienced it, or witnessed it, generally one or more of the following five issues exist. I’m sure there are more than this, but we’ll try and categorise them and take five of them. So one is that committees established by the board, haven’t been given a clear mandate and a timeframe in which to carry out their responsibilities. And so they’ve kind of drifted in their work and the purpose of the sub-committee, what it was supposed to do, its terms of reference etc., just haven’t been clear from the outset. That’s one reason why we tend to find that this disconnect happens. The second one is that the reporting requirements between committees and the board are unspecified and undocumented. So, it’s just not clear how they’re supposed to be connecting up. A third one is that committees are established sometimes to address a kind of a specialist area that is sometimes just beyond the competence of the board.
And so, the board as a collective sometimes becomes disinclined to engage with the work of that committee. So that’s a third reason. A fourth is that there can be just a lack of overall management of the governance structure to facilitate the coordination needed between the board and the committees. And our last factor that we’ve identified is that there can be limited or sometimes really no communication happening between the secretary of the board and the chairs and the secretaries of the committees. And again, that all feeds into this disconnect that can happen.
And I assume your recommendations for organisations have been around addressing these issues. So, what are the tips you give to help solve this problem?
Well, if we take the first and the second issues that I mentioned, which are about committees not having a clear mandate and reporting requirements between committees and the board, not being clear. If we just take those two first. I think what we’d say is that if a board sets up a sub-committee to progress some of the board’s responsibilities, it has to be given crystal clear terms of reference at the outset. And those terms of reference should really tell anyone who refers to them, what the sub-committee can do, to what level, and for how long. So, you know, for instance, is it approving certain things in its own right? Or is it making recommendations in other areas? That has to be absolutely clear. The terms of reference then should also include how the sub-committee is expected to communicate with the board. So, for instance, are the minutes of each meeting provided to the board for reference, does it provide the board with a written report maybe once or twice a year?
Does the chair of the sub-committee meet with the chair of the board occasionally to discuss the effectiveness of the committee? Those kinds of arrangements should be clear. And I would suggest, should be included within the terms of reference so that they don’t get lost. So, the reporting arrangements need to be in there. I think the terms of reference should also say when they’re going to be reviewed. It’s important that a board doesn’t just set up the sub-committee and almost kind of forget about it. It needs to be actively considering if it’s working as it should. And that may require changes to the mandate of that sub-committee. And any changes to that then need to be recorded in the terms of reference. So constantly looking at and defining what it is the sub-committee needs to do. Making sure it’s clear as to how it communicates with board. And then always looking to see if it’s actually effective; if it’s doing the job that it was intended to do when it was established first.
It sounds to me like as in lots of areas of governance and in management, if left to its own devices, if left to just develop organically often its natural state isn’t to work really well and it needs defined processes and reviews, and at times regular communication that is quite contrived, but set out in some sort of clear process. Because like I said, it’s not its natural state to work as we would all hope.
Yeah, exactly. And if it’s not working as was intended, it could present a risk to the organisation because it could actually have started working outside of its terms of reference. It could have started making decisions that really it shouldn’t have, it could have stopped communicating things that the board actually needed to know about and that had implications for something else. So yeah, exactly. You have to have those connections and you have to be constantly reviewing and trying to improve the relationship between the committees and the board.
So clear terms of reference then will help to explain what role the sub-committee plays and how it reports into the board. But what about this third issue that you mentioned about sub-committees being quite specialist and maybe beyond what the board knows about, understands, and can engage with?
Yeah, I think this is a genuinely difficult issue. It actually comes up quite often with the Audit and Risk Committee where you have board members who’ve never dealt with financial matters before and they really just don’t know what questions they should be asking when reports are coming in from the Audit Risk Committee. If they’re presented with a budget or with management accounts, they just don’t know where to go with that. And there are some other boards that have quite technical responsibilities that could have been given to them through the legislation that formed the organisation and they may need a sub-committee with specialist knowledge to address those issues. So, for instance, they could have some legal responsibilities that they need legal expertise on a sub-committee to cover. And it’s understandable of course, that the board as a collective may not feel that it has the expertise to engage with the work of those types of committees, but the chair of the board and the secretary really need to consider what can be done to bridge that gap.
And I think this is where the professional development for board members that we discussed in episode 3 comes into play, where I think the secretary of the board needs to be thinking about, for instance, perhaps creating a session for board members outside a regular board meeting that explains to them the work of the sub-committee, exactly what it’s doing, what its purpose is. And maybe helping, again through a focused session, helping board members to identify the types of questions they might want to ask to satisfy themselves about the work of those sub-committees. So, kind of giving the board members a license to ask questions but giving them the comfort, I suppose, that the types of questions that they’re asking are legitimate and valid questions.
Well that brings us back to the responsibilities of the secretary, to the board and the importance of that role in making the board work effectively. The fourth and fifth issues you identified were around coordination between the board and sub-committees. What do you think the issues are there?
Well, this, again, as you say, is where the secretary role is so important. The secretary of the board really needs to think about the board and its committees as part of one governance structure, not as individual parts of a system that doesn’t connect. And there are a few things that need to be done here. I think the secretary needs to make sure that minutes from sub-committee meetings are being provided to the board for reference, that any periodic reports that are due from sub-committees on their business are actually produced and that they’re submitted to the board. The secretary also needs to make sure that any feedback that’s coming from the board – so it’s not all one way between the committees and the board – so any feedback that’s coming from the board has been delivered accurately to its sub-committees. And I think it can also be useful for the chair of the board to meet the chair of the sub-committees once or twice a year, to discuss how the connection between the board and its sub-committees could be strengthened. All of these things I think could be things that the secretary has on their minds as ways of ensuring that there’s a better connection between the sub-committees and the Board.
Yeah, that makes sense. Well, in episode 1, you were telling us about external evaluation of the board. Do these sub-committees get evaluated at the same time as the board?
Well, the Code of Practice for the Governance of State Bodies, is not completely clear on this. It says that when an organisation is doing an internal evaluation of its Board, that it should include its committees. It’s not quite as explicit about committees being included in external evaluation, but even so I think the spirit of the Code suggests that it is intended that committees are included in an external evaluation. And it’s something that we would advocate. The Charities Governance Codesays that the larger organisations, the larger charities should self-evaluate their board and sub-committees, and they include things like looking at the effectiveness, the size, and the terms of reference of the sub-committees. I think evaluation of boards and committees means that you’re looking at the governance system in a more complete way. I think that helps, if you look at boards and their sub-committees together, I think it helps board members and sub-committee members to understand and see that their work is connected.
Yes. I can see the importance of that. Well, thanks so much, Trish. That was really insightful. Great.
As discussed before, one of the roles of the board is to provide strategic direction and to add strategic value to decisions. Sometimes boards can slip more into operational issues and that’s really the job of the head of the organisation and their staff. So, I’ll be talking to Trish in the next episode about how we can stop that happening. I hope you’ll join us, and don’t forget, you can find out more and access resources, templates, and the One Question Guides at obriengd.ie. Thanks for listening.