The nature and composition of an executive board can vary from one organization to another. In general terms, an executive board consists of a small group of key decision-makers in a corporation. In for-profit and non-profit corporations, the executive board is chosen by the board of directors and usually consists of board directors, including officer positions like the chair, vice-chair and treasurer. Depending on the organization, this elite group of directors may be called an executive board, an executive committee or a steering committee.
TL;DR (Too Long; Didn't Read)
An executive board member is a key decision-maker in a corporation, usually from the board of directors, such as the chairman, vice-chairman, secretary or treasurer. You may often find executive officers, like the CEO or CFO, on an executive board, but these are management titles that don't necessarily refer to board positions.
Corporate Structure and the Hierarchy of Governance
Before examining executive boards, it helps to understand how corporations are organized. First of all, the owners of a company make the decisions. In a small business, this may be just one or two people, but in larger corporations, it could be thousands of individual shareholders. Because the shareholders can't meet to decide on every decision that needs to be made, they elect a board of directors.
The board of directors meets regularly and oversees the company's governance. They typically vote on, and hire, the chief executives, like the Chief Executive Officer (CEO), who in turn hire the managers and oversee the management of the company, while reporting back to the board. The distinction between governance and management is very important: Governance includes making policies and important decisions and setting budgets, while management involves implementing those policies and decisions.
Some corporations also have an executive board and its members are usually the top members of the board of directors. They may be able to make decisions without the approval of the board of directors, or they may merely make recommendations for the board of directors to vote on, depending on the corporation's bylaws. In the organizational hierarchy, managers report to chief executives, who report to the board of directors, while the executive board normally would be above the board of directors.
Why Corporations Form Executive Boards
Choosing to use an executive board can come about for a number of different reasons. One of the most common reasons is that sometimes crucial decisions need to be made quickly. If the board of directors is large, or if the members can't always meet as often as circumstances require, they will select an executive board, who can meet more regularly or even at the last minute when circumstances require it.
A second reason for using an executive board is to discuss and make decisions on confidential matters, like an impending lawsuit or a corporate takeover. This limits the number of people who will be involved, preventing information leaks. The executive board can review all of the confidential information and either make a decision for the board of directors or make a recommendation to be voted on by all board members.
A third reason is often due to ownership privilege. For example, if one or more people own a majority share of a company, they could appoint themselves to the executive board. It is not uncommon when one person owns more than 50% of a company's shares to make himself the chairman of the board and CEO, then appoint his closest advisers to the executive board.
Board of Directors Positions
The positions in a corporation's board of directors, their responsibilities and obligations are detailed in a corporation's bylaws. In most cases, but not always, each board member has one vote. In non-profit corporations, board members may represent different industries or geographic areas, depending on the mandate of the organization.
In most cases, due to the importance of these board positions, it is the officers of the board of directors who are most likely to be a member of the executive board:
The Chair: Often called the chairman of the board or president, this is the top position in the board of directors. She runs the board meetings and usually gets two votes in case there is a tie.
Vice-Chair: Sometimes called the vice-president, or vice-chairman, this is usually the second-most important position and may be occupied by the person who will be appointed as chair in the future.
First Vice-Chair: In some corporations, all members of the executive board may be given the title as vice-chairs. In this case, the person who is second to the chair is called the first vice-chair.
Secretary: This person is responsible for recording the minutes (or notes) at board meetings and then submitting them for board approval. The secretary may also be responsible for keeping the company's non-financial records and legal documents.
Treasurer: The treasurer keeps the corporation's financial records and may be responsible for signing checks and approving purchases, tax returns and other financial matters. Small corporations often combine this position with that of the secretary, making this the secretary/treasurer position.
Composition of Executive Committee or Executive Board
Who you will find on an executive board, executive committee or steering committee depends entirely on the organization. In a small company, the executive could consist of two or three directors, simply because they control the votes. For example, if there are only five board positions, the chair, vice-chair -and treasurer could form an executive board and would have the majority vote. In this case, the board of directors would effectively be just a rubber stamp, with the other two members having little say in what happens.
Many corporations do put the CEO on the executive board, even if the CEO is not on the board of directors. However, this depends entirely on the organization and its bylaws. Whether the CEO is on the executive board or not, she usually works closely with them, simply because this is the person who runs the day-to-day management of the organization.
Executive Board Roles and Responsibilities
Like the members themselves, the roles and responsibilities of an executive board vary from one organization to another. Additionally, non-profit executive committee roles and responsibilities can vary considerably from a for-profit corporation. Corporate bylaws always define how much power the executive has and what its responsibilities are.
A common responsibility for an executive board is to research investment opportunities and industry trends and analyze risk. They usually report their findings and their progress on projects to the full board. Because they meet more often than the board of directors, the executive committee often oversees the daily implementation of board policies in the organization, which again is another reason to have the CEO in the executive meetings.
Executive boards are also often responsible for creating other committees for specific projects, like a fundraising event in the case of a non-profit corporation, or a task force on expanding into a new line of business in the case of a company. The executive board would then oversee the progress of these committees. The minutes of an executive board meeting are usually recorded and at least a summary of these minutes are provided to the full board on a regular basis.
- Board Effect: The Executive Board’s Roles and Responsibilities
- Diligent: What is The Role of the Executive Committee?
- University of San Diego: The Crucial Difference Between Governance and Management
- SEC: National Security Solutions Inc: Form of Charter of the Executive Committee of the Board of Directors