Good governance goes beyond the board – how to ensure your sub-committees are working for you

Why are sub-committees so important?

For many boards, sub-committees are where the bulk of the board’s work actually takes place. Sub-committees enable a board to ‘divide and conquer’ by distributing the detailed planning and oversight of each of the board’s many responsibilities across smaller groups of appropriately skilled members. While the collective responsibility for decision-making remains with the full board, sub-committees inform the board through reporting and making recommendations in line with their remit.

The number and type of sub-committees depend on the tasks required, and their tenure may be short or long-term. Sub-committees must utilise the specific expertise of members as well as others, including staff and/or external parties. Chairing sub-committees provides valuable experience for members, which can be useful in succession planning for future board leadership roles.

Effective sub-committees provide significant benefits to boards and the organisations they govern through enabling the board to make informed decisions and meet their many and varied governance and regulatory responsibilities. They play a key role in supporting directors to be assured in their strategic and oversight roles for risk and compliance by providing analytical information that improves and optimises future governance decisions and performance.

They also benefit members by providing them with the opportunity to utilise and extend their knowledge and understanding of specific aspects of governance as well as the organisation they are governing. Governance experts even advise that an accurate correlation for strong board culture and performance is the effectiveness of a board’s sub-committees.

Are sub-committees supporting boards in achieving their goals?

Governance Evaluator analysed board evaluation responses from over 90 boards comprising almost 1000 members across multiple industries in 2018 and 2019. The key finding was that the satisfaction of board members with their sub-committees in supporting the board to govern effectively varies greatly between industries.

In the health sector, the structure and function of sub-committees are heavily mandated by government agencies. As a result, the responsibility and reporting requirements of sub-committees are relatively well understood and adhered to. This maturity is reflected in the strong majority of health board members who reported being satisfied that the work of the committees supports the board’s governance role in both 2018 (79%) and 2019 (85%), as well as reporting a low level of uncertainty in regard to this topic (4% in 2018, 2% in 2019). Having said that, health sector sub-committees, in particular quality and clinical governance committees, have shifted their focus to having the right risk systems operationally reporting to the sub-committee. They are also focused on having the right skills on their committee, specifically a chairperson with strong leadership qualities and directors with a strong health sector background. Finally, building capabilities for reporting industry indicators, trends, benchmarks and commentary.

The aged care sector is at a very different stage in its governance and regulatory maturity regarding sub-committees. In 2018, 80% of aged care board members were satisfied that the work of the committees supports the board’s governance. However, in 2019 this figure dropped significantly to 50%. Interestingly, the level of uncertainty among board members about the effectiveness of sub-committees was relatively high in 2018 (9%) and even higher in 2019 (15%). It is likely that this lower satisfaction and higher uncertainty relates to the new Aged Care Standards and Royal Commission raising awareness of governance issues and best practice across the sector, which has led to a more critical reflection of sub-committee performance.

The community, non-profit & associations sector also experienced a decline in reported satisfaction that the work of the committees supports the board’s governance between 2018 (70% satisfied) and 2019 (66% satisfied), and an unchanged yet relatively high level of uncertainty about sub-committee performance (9% in 2018, 7% in 2019). Like aged care, this sector is comprised of organisations that do not have mandated sub-committee regulations, therefore the effectiveness of their sub-committees is more dependent on the individual preferences and actions of the board rather than a proven standard of best practice that must be achieved.

Across all sectors however, there were consistent reasons given by those board members who reported a lack of effectiveness in supporting the board. These include:

  • Insufficient or unclear sub-committee terms of reference which are required to inform members of the purpose of the committee or its function, the skills required of the chair and directors, external members and internal organisational members, reporting structure to the board, tenure and annual review. This led to uncertainty regarding the scope and governance responsibilities of sub-committees.
  • Too many (or too few) sub-committees on the board. Some boards were ‘gathering’ committees not realising that they could be discontinued after a set amount of time if they had completed their specific role. Other boards had too many operational type committees, blurring the lines between governance and management, with many boards reporting they did not have the right sub-committees to support them to achieve their strategy.
  • Members being placed on too many sub-committees or being placed on sub-committees for which they do not have suitable expertise.
  • Inadequate or unsophisticated reporting by sub-committees to the board, in particular in relation to understanding the top risks to report and how to provide trended and industry benchmarked data with commentary to support the board’s ability to decision make and deliver their oversight roles.

How your board can ensure your sub-committees are effective

Review your sub-committees. The Governance Evaluator Sub-Committees Review involves a review of the overall sub-committee structure in relation to the organisation’s strategy and governance requirements. It looks at each individual sub-committee’s terms of reference with a view of identifying its relevance, role, skills, both for leadership and membership, reporting structure, and effectiveness.  The process includes interviews with the committee members and/or Chairs.

The findings of the Governance Evaluator Sub-Committees Review would then inform the appropriate next steps for the board, such as:

  • Identifying what you can learn from other industries who have a more mature sub-committee environment.
  • Discussing and agreeing to the right number of sub-committees for the board, and ensure that each sub-committee is composed of the right people who have expertise in the area, particularly the chair of the sub-committee.
  • Set terms of reference for each sub-committee that outline a defined purpose, function, process, timeframe, attendance requirements, reporting obligations as well as a clear product/outcome to be generated by the sub-committee.
  • Calculate and agree to the financial and time resources needed to support the sub-committee
  • Confirm the board’s preferred report format and content from the sub-committee, inclusive of risk reporting and business analysis for decision making.
  • Set measures to determine whether or not the sub-committee is reporting to the board and completing its tasks successfully, and agree to the evaluation/review process for each sub-committee in relation to the annual board review.

The sub-committees review process and subsequent next steps will support governing bodies to be confident that the sub-committee structure is effective and efficient, that there is transparency of information and accountability of actions to inform good decision making and governance.