mittee. When a finance committee exists, the treasurer reports and is responsible to that committee; otherwise to the executive committee.

"These standing committees appointed with such powers are the real managing bodies of the corporation, the board merely receiving their reports and supervising their operations. They usually act and then report their action to the board. In some cases where they prefer to throw responsibility upon the board, or where some statute provision requires action of the board, or when it is desirable to lend added weight to some contemplated measure, the committee will report the matter to the board with a recommendation that the desired action be taken."1

§ 34. Appointment of Finance Committee.

"The standing committees are usually created and empowered and the manner of their appointment or election is prescribed by charter or by-law provisions. Since the powers of the board are to a greater or less degree to be delegated to these committees they must be composed of members of the board. The provisions as to their appointment are therefore confined to the manner of their selection from this body. Sometimes the creating provision will provide that certain officials of the board shall form the standing committees, as for instance that the president, vice-president and treasurer shall constitute the executive committee. The treasurer if a director is designated as a member of the finance committee almost as a matter of course. Also it is quite usual to provide that the president of the company shall er officio be a member of the executive committee and sometimes it is provided that he shall be a member, and the presiding officer of all standing committees. At times it is provided that the president shall appoint the different standing committees. The most common,

1 Conyngton on Corp. Org., § 163.

and perhaps the safest plan, leaves the membership of these committees to be decided by an election in the board."2

When standing committees are to form part of the corporate mechanism, their appointment is usually prescribed by charter provision. The details of appointment and of their duties and procedure thereafter may also be fixed by the same authority, but are better left for the by-laws. Frequently the charter will merely prescribe that standing committees shall or may be appointed, leaving all details to the by-laws and to the board.

For instance, the charter of the United States Steel Corporation specifically authorizes the board of directors to appoint an executive and other standing committees, as follows:

"The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint from the Directors an executive committee, of which a majority shall constitute a quorum; and to such extent as shall be provided in the by-laws, such committee shall have and may exercise all or any of the powers of the Board of Directors, including power to cause the seal of the corporation to be affixed to all papers that may require it.

"The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint any other standing committees, and such standing committees shall have and may exercise such powers as shall be conferred or authorized by the by-laws."

In the by-laws of the United States Steel Corporation as originally adopted, an executive committee was provided for with specified powers. Since that time, however, the by-laws have been so amended as to eliminate this committee. Practically it has been merged into the finance committee which is given broad and general powers rarely conferred upon a finance committee. It occupies in fact the position usually accorded the executive committee and is the only standing com

2 Conyngton on Corp. Org., § 164.

mittee with any real powers found in the organization of the corporation.

The appointment of the finance committee is authorized. and directed in Article III, Section 1 of the by-laws in the following provision:

"The Board of Directors shall elect from the directors a Finance Committee, and shall designate for such committee a chairman, who shall continue to be chairman of the committee during the pleasure of the Board of Directors."

Also in Section 2 of the same article, the membership of the finance committee is prescribed as follows:

"The Finance Committee shall consist of seven members, besides the chairman of the Board and the president, each of whom, by virtue of his office, shall be a member of the Finance Committee."

These by-law provisions are mandatory, requiring the board to appoint a finance committee and restricting its membership to members of the board,—a restriction also found in the charter and a mere restatement of the common law. The number is limited-if the term is properly used in connection with so large a committee-to nine members, two ex officio members, i. e. the chairman of the board and the president of the corporation, and seven elective members.

This plan of appointment, whereby the committee is constituted in part of ex officio members of whom the president of the company is always one—and in part of members directly elected by the board, generally prevails. Thus in the by-laws quoted from in the preceding chapter,3 we find the following provisions relating to the appointment of the finance committee:

"There shall be a Finance Committee of three or more members as may be determined by the Board of Directors, consisting of the President of the Company and

8 Chap. IV, § 30.

of two or more other members, to be chosen annually by the Board of Directors from their own number, at the first meeting of the Board after the annual meeting of the stockholders or as soon thereafter as may be convenient." Under this provision the finance committee must be composed of at least three members and may have as many more as the board sees fit, up to the total membership of the board of directors itself. In practice, however, the membership of the committee is always small. A finance committee composed of nine members as in the United States Steel Corporation is very unusual, the membership of such committees rarely exceeding five. It is obvious that a large membership would defeat the very purpose for which the committee was appointed.

Vacancies in the standing committees are filled in the manner prescribed by the by-laws or other creating provisions. The by-laws just quoted from provide in a later clause that vacancies in the finance committee shall be filled for the unexpired term by the remaining members of the committee, subject to the approval of the board of directors at its next meeting. In the United States Steel Corporation, however, all vacancies in the finance committee are filled by the board of directors. This would seem the preferable plan.

As the finance and executive committees usually exercise discretionary powers which belong to the board of directors, their membership must, as already stated, be confined to the membership of the board. If it is not so confined, the power of the board to delegate its authority to the resulting committees, composed in whole or in part of members who are not directors, is questionable, and as a consequence the action of such committees, if not absolutely illegal, would be of doubtful validity. When the committees are properly constituted, however, the board has undoubted power to delegate to them all the authority it possesses, unless such delegation is expressly prohibited by statute or by charter provision.4

4 Sheridan E. L. Co. v. Bank, 127 N. Y. 517 (1891); Jones v. Williams. 139 Mo. 1 (1897); Union Pacific Ry. Co. v. Chicago, etc. Ry. Co., 163 U. S. 564 (1896); Burrill v. Nahant Bank, 43 Mass. Rep. 163 (1840); contra, Weidenfeld v. Sugar Run R. Co., 48 Fed. Rep. 615 (1892).

As far as permitted by the limitation to the membership of the board, the members of the finance committee will naturally be selected on the basis of qualification. In the bylaws of the United States Steel Corporation it is specified :

"So far as practicable each of the seven elected members of the Finance Committee shall be a person of experience in matters of finance. Unless otherwise ordered by the Board of Directors, each elected member of the Finance Committee shall continue to be a member thereof until the expiration of his term of office as a director." (By-laws, Art. III, § 2.)

This same rule as to qualifications should obtain, as a matter of course, in the appointment of any finance committee, those members of the board being selected whose experience or standing in financial matters best qualifies them for its work.

§ 35. Organization of Finance Committee.

There is no general rule as to the internal organization of the finance committee-that is, as to its officers and the manner of their appointment or election. In some cases the committee officers are designated by the charter or by-law provisions which authorize or create the committee; in others, they are elected by the board of directors, while in many cases the selection of its officers is left to the committee itself.

Generally the officers of the committee are a chairman and a recording secretary. Other officials may be appointed but are not usually either necessary or desirable. In the absence of any special reason to the contrary, it would seem proper that the president of the company, who is almost invariably ex officio a member of the committee, should be its chairman. If not otherwise prescribed, the selection of a chairman might well be left to the committee itself.

In the United States Steel Corporation the chairman of the finance committee must be designated by the board of directors (By-laws, Art. III, § 1) but it is expressly provided