Board-and-a-Committee

Difference Between a Board and a Committee

As the workload for boards has increased, there has been a corresponding tendency towards the creation of a variety of committees to deal with specific issues. So, what is the difference between the two concepts?

What is a Board?

Unlike a company with one or several shareholders, which can be directly managed by the owners, in a public company, there are hundreds or even thousands of shareholders. To take into account the interests of all, a special board of directors is formed. Sometimes referred to as a supervisory board.

The main task of the council is to ensure that the value of the company grows in the interests of all owners. Board members are elected at the annual general meeting of shareholders. Typically, the board of a public company consists of 7 to 12 people. Not only shareholders and managers of the company can be elected to the board of directors, but also specialists invited from outside. Such board members are called independent.

The Board of Directors makes the following decisions:

  • Recommending dividends and buyback programs.
  • Negotiation of major transactions, including M&A and related party transactions.
  • Disposal of treasury blocks of shares, as well as approval of SPOs and additional issues.
  • Approval of the company’s strategy.

The board of directors can appoint and dismiss management, oversee its work, oversee the company’s transparency and reporting, and take other actions to ensure benefits for shareholders and prevent possible abuse by management and individual owners.

What is a Committee?

A Committee is a council, meeting, congress, collegial body formed to work in some special area, usually related to leadership or management.

There are the following types of Board Committee:

  • Strategy Committee;
  • Human Resources and Remuneration Committee;
  • Audit Committee of the Board of Directors;
  • Committee on labor protection, industrial safety, and ecology.

What is the difference?

The difference between a Board and a Committee is that the –°ommittee reports to the Board of directors, thus it is a lower link in the structure of the company.

For example, the Strategic Committee assists the Board of Directors in fulfilling its corporate governance responsibilities in making decisions on the approval of the strategy and strategic initiatives of the Company, its subsidiaries, and joint ventures, and ensuring control over their implementation and development by the executive management. The committee was created to facilitate a collaborative interactive strategic planning process of the Board and executive management.

Corporate governance experts note a paradigm shift in the work of boards of directors in Russian business. The accent in the activity is shifting from total control over management and operational management towards the development and constant adjustment of the strategy. The rate of change in the external environment inevitably leaves its mark on this process. In a market where flexibility and adaptability are constantly required, long-term strategies invented yesterday are no longer working. Business leaders have to “upgrade” their vision of management strategy almost quarterly.

Against this background, the importance of the board of directors as the chief strategist is undoubtedly increasing. And a specialized committee under the council as the main creator of stratagems. In a tough competitive struggle, where there is no way not to keep your finger on the pulse, visionaries are more useful, who can track changes in time and correct the process. This role is often assigned to strategy committees on boards of directors, where strategic management specialists are gradually complementing the homogeneous palette of lawyers and economists typical of the early stages of corporate governance in business. The inclusion of independent directors on the strategy committee also works to increase objectivity in decision-making.