Death by Committee? An Analysis of Corporate Board (Sub-) Committees

Abstract

Theoretical models of groups suggest that sub-group usage can affect communication among members and group decision-making. To examine the trade-offs from forming sub-groups, we assemble a detailed dataset on corporate boards (groups) and committees (sub-groups). Boards have increasingly used committees formally staffed entirely by outside directors. Twenty-five percent of all director meetings occurred in such committees in 1996; this increased to forty-five percent by 2010. We find evidence that granting formal authority to such committees can impair communication and decision-making. Sub-groups are relatively understudied, but our results suggest that they play an important role in group functioning and corporate governance.

Keywords: Board of Directors; Committee; Decision-Making; Sarbanes-Oxley

JEL Classification: G30; G34; G38