Sep 06, 2024
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In recognition of his board’s unique skills and experiences, Flint Lane, founder and former CEO of Billtrust and an active member of the Edison Director Network, took action to ensure they were better utilized outside the board room and in partnership with his executive team. He implemented a sub-committee structure to advance key strategic initiatives for the business. By establishing committees focused on critical growth areas, like international expansion and M&A, and pairing 1-2 board members with executive leaders on each committee, Lane fostered a more collaborative board dynamic. Leveraging sub-committees not only heightened Billtrust’s board engagement but also empowered the executive team to take ownership and drive key initiatives more effectively.
Sub-committees spread out the responsibility of deeper topics, allowing the full board to function at a higher level when together. The most common (required) board committees are the audit committee and the compensation committee.
The Audit Committee oversees the financial and audit functions of the company, including:
- Ensuring transparent financial reporting
- Assessing the adequacy of the internal controls
- Reviewing GAAP accounting treatment
- Addressing the company’s financial resources
- Conducting 409a valuation
- Selecting and hiring an auditor
- Flagging areas of accounting complexity
- Identifying risk areas to the business from both financial and legal perspectives
The Audit Committee should consist of two to three directors, including at least one investor and one independent director. The investor director ensures the financials being presented to the board (and relayed to the investor’s firm) are consistent and accurate, and ideally, the independent director will bring extensive expertise in the financial function. Though the CFO should not be a part of the Audit Committee, he or she generally attends all non-executive sessions.
The Audit Committee should meet at least twice a year to review company financials, including both before and after the annual audit to discuss any major changes. An executive session with the auditor is recommended to facilitate full disclosure to the committee.
It’s important for the Audit Committee to understand the company’s key accounting assumptions (revenue recognition, gross margins, cost of goods sold, capitalized expenses).
The Compensation Committee sets performance targets for management and ensures that all compensation is aligned with the company’s business interests. The committee’s charge is to incentivize management through cash and equity compensation, while also helping the C-suite properly incentivize lower-level employees. In addition to these responsibilities, the Compensation Committee:
- Evaluates, recommends, and approves executive officer compensation arrangements, plans, policies, and programs
- Administers equity-based compensation plans and annual bonuses
- Makes recommendations to the board regarding executive compensation
- Periodically assesses sales and management compensation levels to ensure they are in line with company financial interests
There should be two to three directors on the Compensation Committee, including at least one investor director (different than the one serving on the Audit Committee if there are multiple investor directors) and at least one independent director. It is important not to include the CEO on the Compensation Committee, though he or she may attend discussions and provide recommendations on direct reports. Once a company reaches $30M in revenue run rate, it’s recommended that a compensation consultant be hired to provide a benchmark on executive and board compensation.
The Compensation Committee should meet twice per year: once at the end of the year and once concurrent with the board meeting designated to review executive performance. Until a compensation consultant is hired, the committee can use recent compensation survey results to gauge executive compensation and annual incentive plans against market rates.
In addition to these common board committees, special sub-committees can also be established for specific circumstances. These might include:
- A Key Executive Search Committee charged with supporting the CEO in hiring management team members
- An M&A and Investment Committee to negotiate and assist in the evaluation of potential transactions, and to negotiate terms on behalf of the company
- A Litigation Committee to handle any complex or ongoing litigation
- A Technology Committee to support exploration of AI, cyber risks and other game-changing innovations
- A GTM Growth Committee to strategically expand addressable markets through geographies, verticals, partners or other flywheel growth levers
- An Operations Committee to focus on operational efficiencies and any cost reduction efforts, which may need extra attention
By intentionally leveraging sub-committees, growth-stage companies can ensure that key business areas get the detailed attention they deserve. The right committee structure also levels up board engagement and performance, transforming your board into a true strategic weapon.
