Business

Board Of Directors vs Executive Committee – The Key Differences

By Ryan Bradman | May 26, 2022

Table of Contents

When it comes to running a business, it’s important to know the difference between your board of directors and executive committee. Your board of directors is the group of people who set the overall vision for your company and oversee its financial health, usually done through regular board meetings with a stringent agenda format. Your executive committee is a smaller group of people who are responsible for running day-to-day operations.

These two groups have different responsibilities and require different skill sets. In this article, we’ll outline some key differences between the two groups so that you can better understand their roles in your organization.

what is the difference between a board of directors and an executive committee?

1. Purpose

The purpose of the board of directors is to ensure that the company is managed effectively and efficiently. They oversee all aspects of the organization, including financial planning, marketing strategies and human resources.

The executive committee’s main purpose is to implement the decisions made by the board of directors. They work closely with other management teams within the organization to ensure that daily operations run smoothly.

2. Responsibility

The board of directors has ultimate responsibility for the overall direction and performance of an organization. It hires and fires executives, sets goals and policies, and determines compensation packages for employees.

The executive committee has more focused responsibilities, such as management advice to seniors on strategic decisions or reviewing budgets before they go to the full board for approval.

3. Authority

The board of directors has the authority to make decisions about the company’s long-term strategic direction and its business growth. They can make any decision that is not specifically prohibited by law or by their organization’s charter. Some examples include approving mergers and acquisitions and hiring senior executives.

The executive committee is a sub-group within the board who have been given special authority to make decisions on behalf of the board as a whole. They have more limited authority than boards do; they cannot make decisions without first getting approval from the full board.

4. Formation

A board of directors is typically formed by a corporation’s shareholders. These individuals may or may not be involved in day-to-day operations of the company. Still, their primary responsibility is to represent shareholders’ interests and ensure that the company’s assets are protected.

An executive committee is typically formed by top executives within a company. They are responsible for managing daily operations and making decisions about strategy, growth, and innovation.

5. Accountability

Board members are held accountable by shareholders who hire them and expect them to act in accordance with their interests as investors.

Top management holds executive committee members accountable and appoints them based on their skillsets needed to execute strategic initiatives related to growth or innovation within the organization.

6. Composition

The composition of a board of directors is usually made up of shareholders or outside members who other shareholders elect. The board itself may also appoint them.

An executive committee is typically made up of high-level executives who have been chosen to serve on this team. They can be either permanent or temporary members, depending on how management selected them.

7. Liability

Both the board and the executive committee are liable for their actions. The board of directors is liable for decisions made according to their position on the board.

The executive committee is not liable for decisions made by committee members unless those individuals were acting beyond their authority or were instructed to do so by another member of the committee.

Conclusion

The executive committee is practical and down-to-earth, while the board of directors is idealistic, with a wider vision. An executive committee is where business decisions are made, while a board of directors is intended to provide guidance. Overall, these two terms overlap. But it’s helpful to understand the key differences between them—especially for those who lead organizations.