What is the difference between a Board's Committee and a Management Team with similar responsibilities?

Question

I have come across many resources that suggest a Board of Directors may benefit from being made up of committees, such as:

1. Remunerations Committee;
2. Audit Committee;
3. Marketing Committee;
4. Budgetary Committee.

I am aware that the chain of command is as follows:

Shareholders/Owners > Board of Directors > Management Team

A company's Management Team would typically be made up of the following, non-statutory, Directorial positions:

• Managing Director/CEO;
• Marketing Director;
• Operations Director;
• Finance Director etc.

With the above in mind, I am failing to understand why a company would need a Marketing and Budgetary Committee when there is a Marketing and Finance Department, headed by their respective non-statutory Directors.

Answer 1

Assuming you're in the US given your description of corporate leadership.

The board (or directors) and the managers are aspects of the legally-mandated structure of corporations (C-corps, etc.) in the USA.

The directors are elected by shareholders and are responsible for running the company. Frequently, directors will appoint managers and delegate responsibilities to them (e.g., CEO, CMO, COO).

However, the directors are always ultimately responsible, so they may occasionally make decisions that would have otherwise been delegated to managers.

There are also decisions that only the directors may make -- e.g., sale of the company.

If the directors want to engage on a specific topic, they may form a standing or ad-hoc committee of directors to address it -- made up of individuals with experience that is valuable for an analysis of the topic. Since the directors are ultimately responsible for the activities of the company, the purpose of the committee could be anything related to the activities of the company. E.g., to investigate potential wrongdoing within the company, or to analyze a new strategic direction.

Because there are managers appointed to handle the day-to-day tasks that a committee might be evaluating, managers are frequently invited to committee meetings as advisors or observers.

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As an aside, directors and managers are legally distinct definitions in the US. Directors have specific duties that they can be held accountable for (disclosure, corporate opportunity doctrine, business judgement doctrine, etc.). These do not extend to managers, who are employees of the corporation (and can only be held accountable as any other employee would).

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Some specific answers to your questions in the comments:

...can 'managers' and 'officers' be used interchangeably? If so, what would be the correct collective term for those who serve directly beneath these 'managers/officers' (Marketing Director, Operations Director etc)?

Managers and officers refer to the same role, yes. Those employees appointed by the board.

Business semantics are not uniform nor universal, but employees would probably be the most general term for all individuals at any level. Management is a good general term for all individuals in a management role (i.e., have individuals that they supervise).

Would [the board marketing committee’s] role be to decide on which markets they want the company to compete within and then hold the CMO or Financial Director accountable by evaluating how they achieved the Marketing Committees strategic objectives?

Potentially yes. The directors are free to run with whatever processes they deem best (pursuant to the interests of the shareholders). If the board wants to make specific marketing decisions, like the one you describe, it may. Depending on the size of the company and the preferences of the board, directors could involve themselves in only very strategic decisions, or more tactical decisions.

Does the CEO/MD have any role in this? (who gets invited to board committees)

Almost entirely yes. The CEO is likely an ex-officio non-voting member of the board, so he or she has input on board decisions.

...couldn't a conflict arise in the event that a Board's Marketing Committee directs the CMO/Marketing Director in one direction with the CEO having made strategic plans that oppose what the Committee suggests?

Yes. The CEO reports to, and serves at the pleasure of, the board. So he or she would be expected to execute the plans the board creates.

In practice, the board is regularly briefed on the state and strategy of the company and provides input to the managers/officers. It’s unlikely that the board and management would be so poorly aligned.

Answer 2

A board of Directors may have insight, oversight, input, decision making ability, influence, etc. but they don't execute. They're not in the trenches doing the work.

If you'll forgive a military analogy:

During World War II, General Dwight D. Eisenhower was the supreme commander of Allied Expeditionary Forces. He had very capable generals in the field, like Omar Bradley, George S. Patton, etc.

So you might ask, why do we need generals in the field when we have a general at the head of the Supreme Headquarters Allied Expeditionary Force? Because Eisenhower was primarily responsible for the strategy, planning, and tactics that would be used in the war... but he didn't execute them. That was the job of the field generals (and their troops). Eisenhower and his field generals talked, planned, discussed, collaborated, etc. but ultimately it was the field generals who were responsible for the execution of said plans and strategy.

Answer 3

Three of the four Board committees you mention:

• Compensation (Remuneration) Committee
• Audit Committee
• Budget Committee

have specific charters to oversee the executives of the company, including the CEO. The work they do cannot be delegated to the executives. Read the annual report of any public company, and you'll see how that works.

As for a marketing committee, it's not hard to imagine some members of a board being expert in marketing. They might form a committee to support the executives in their work.

If you are a shareholder, RSU holder, or option holder of a company you may ask about the charter of a board committee. "Hey boss, I'm curious. What is the responsibility of the board's Audit Committee? How does that work?"