Audit Committee Leadership Network, July 2013
During their first-ever joint meeting on June 5, 2013 in New York, members of the Lead Director Network (LDN) and the Audit Committee Leadership Network (ACLN) discussed effective leadership of boards and committees.1 The joint setting afforded members an opportunity to speak across roles as they exchanged ideas about effective governance practices for boards and committees. Three key themes emerged during the conversation, and are described in more detail within this issue of ViewPoints.
Seventy percent of S&P 500 companies have at least four board committees; 14% have six or more. Boards must determine the number and authority of committees and then decide how to effectively coordinate their activities. Lead directors and audit chairs discussed a number of questions to consider in evaluating committee coordination, such as: Should committee meetings be scheduled sequentially or concurrently? How are board and committee agendas set? Are written and oral committee reports to the full board effective? Do executive committees tend to sharpen agenda-setting, or do they tend toward introducing an unwanted element of two different classes of directors? Views and practices varied among the group depending on a number of factors, including board size, industry, limitations on directors’ schedules, and level of management involvement with board preparation.
Matching directors with board roles
Boards and committees work best with the right people in the right roles. Although circumstances will dictate which director is best suited to serve as audit committee chair or lead director, both roles require strong communication and interpersonal skills. Some audit committees limit membership to financial experts or those who have served on the board for a set period of time; others do not. The “best” lead directors view themselves as servants of the boards whose main role is to facilitate good governance through coordinating with their fellow directors and CEOs.
Rotation, retirement, and removal
Lead directors, audit committee chairs, and board members eventually leave their positions. Boards seek to balance the benefits of continuity and tenure against the energy and new ideas that new directors bring to the boardroom. Members agreed that rotation and retirement policies should not be seen as substitutes for squarely addressing performance problems at the board level.