The role and responsibilities of the board of directors and the various
sub-committees
Global mandates and legislation on the Board of Directors
responsibility, accountability, transparency, changing stakeholder responsibilities
and reforms, suggests a number of possible steps that the board of directors
must take to ensure that they satisfy their obligation and responsibilities
to all stakeholders. This series of article examines the changing expectations
for the various committees and suggests a number of practical measures that
should be incorporated in each committee charter to ensure they meet their
obligation and that boards should consider when establishing a committee.
Material concerns on Good governance
standards, risk management and compliance, continue to grow. The natural
result of this GRC overreach increases the responsibility and the level
of liability of committee members.
Therefore, a committee member it must be continually conscious of the
additional responsibilities that flow each year both as a member of the
committee and the board. These update of responsibilities are relevant
to all kinds of committees but specifically for audit, safety and remuneration
as these issues continue to be on top of the corporate agenda.
In this newsletter, we provide a general overview of each committee together
with the Copenhagen ComplianceŽ committee Framework and their internal
and external relationships with the business framework, strategy and oversight.
In the next newsletters, we examine and review some of the common issues
most committee and the Board of directors have:
Disclosure committee
The primary function of the disclosure committee is to prepare a schedule
and reporting framework to avoid situations where board is presented with
disclosure statements that are, a fait accompli. Therefore, the disclosure
committee members are composed (like the audit committee members) of those
directors who are most knowledgeable concerning financial and disclosure
issues on the business.
The disclosure committee often takes primary responsibility on behalf
of the board for conducting periodic reviews into the corporation's public
disclosures. In addition to ensure compliance with the company's business
obligations to make, timely and balanced disclosures, the primary obligation
of the disclosure committee is to supervise and implement the continuous
disclosure system. The committee must also ensure that matters related
to the material effect on the share price are reported to the proper (oversight)
authority at the right time.
The charter of the committee decides the degree and whether the committee
is involved in or simply approves the ongoing disclosure process. The
charter also addresses issues like enhanced disclosure rules, performing
an investigation into the accuracy of the disclosures, conduct appropriate
due diligence or a more thorough investigation related to complex disclosure
issues.
Related party committee
The purpose of the separate related party committee is to review transactions
with substantial shareholders or actual third party to comply with company
policies and procedures. The purpose of this committee is to provide a
forum for the review of transactions between the corporation and its related
parties.
Certain developments in globalization have intensified the need of related
party committee. The committee must ensure compliance and review significant
agreements and business transactions with related third parties, ensuring
that they always are:
- Occurred within a healthy business relationship and with no undue
advantage
- Were on terms that were no more favorable than would reasonably
be expected of transactions negotiated on an arms-length basis.
Third party committees can also be ad-hoc committee to investigate a particular
grave incident or a murky transaction that needs investigation or clarification
on suspicions related to dubious payments, fraudulent or inappropriate
conduct, unreasonable business judgment, accountability or transparency
issues with business alliances in relation to the approved code of conduct,
etc.
Health, Safety and Environmental Committee
This committee is established to advise the boards in relation to all
health, safety, and environmental issues and matters that arise out of
the activities of the corporation as they affect employees, contractors,
third party, visitors and the communities where the company operates.
In order to undertake responsibility, the committee would usually be accountable
for recommending, changes to policy related to all HSE issues.
- Monitoring compliance;
- Assessing standards for minimising risks;
- Assessing the compliance with legislation and recommendations from
oversight authorities that is not a regular management issue;
The committee must also consider issues that may have strategic, business
and reputational implications for the overall business. Based on the incidents
the committee must report and recommend appropriate measures and responses
to policy changes, and reviewing significant incident investigation HSE
reports.
Corporate Governance Committee
These committees are usually responsible for general oversight of good
corporate governance based on soft law. The responsibilities of corporate
governance committee usually include some combination of responsibility
for:
- Determine the alignment of the board's operations with best corporate
governance practice;
- Review of the effectiveness of committees and the structure;
- Overseeing the process for independent review of the board, the
CEO and the chair;
- Approving corporate governance statements of the corporation;
- Determining the independence of the directors and monitor the ongoing
status of those
- Directors;
- Reviewing existing behavior and ethical guidelines for directors
and considering questions of possible accountability, conduct, segregation
or conflicts of interest.
Nomination committee
These committees review and consider the structure and balance of the
board and make recommendations regarding appointments, retirements and
terms of office. In particular, the committee will usually include responsibility
to:
- Identify and recommend to the board, candidates for the board and
competencies of new directors;
- Review induction procedures;
- Assess and consider the time required to fulfil their duty;
- Review succession plans for the board;
- Review measures for keeping directors up to date with the corporation's
activities and external developments.
Remuneration committee
The committee is usually expressed to be "responsible for ensuring that
the corporation has coherent remuneration policies and practices which
are consistent with human resources objectives
Moreover, which enable the business to attract and retain executives and
directors who will create value. It is this committee's responsibility
to equitably, consistently and responsibly reward executives with regards
to the performance of the executive and the general pay environment. The
committee must, in the context of the Company or Corporations Act take
control of the disclosure obligations relating to executive remuneration
and the implementation of the remuneration reports for the stakeholders
or the annual general assembly.
The committee's usual responsibilities would include:
- Review compliance to say on pay
- Review the company's approach to compensation;
- Oversight of the establishment of compensation proposals;
- Consider of all material remuneration decisions, e.g., the CEO,
CFO, etc.;
- Provide recommendations as to appropriate compensation and incentive
schemes.
Audit committee
Is possibly the oldest of all board committee's as practically all sets
of corporate governance guidelines recommend and in many instances require
that the boards of large and/or publicly listed companies should have
at least an audit committee. Several scandals and crisis have further
positioned the audit committee with an importance for substantial or material
risks in business dealings. There is no one size fits all charter or what
an audit committee should do and how it should be comprised. Therefore
adequate attention must be given to the customized charter and composition,
so that the committee does not end up with too much on its plate as often
is the case. The committee oversees:
- The adequacy of the corporation's accounting system and internal
control environment;
- Review effectiveness of their internal accounting controls;
- Identify improvements to the corporation's internal controls,
policies and financial disclosures;
- The adequacy of the corporation's system for compliance with relevant
laws, regulations, standards, mandates and codes;
- Ensure that internal audit has an unobstructed and clear communication
channel to the Committee;
- Quantify the frequency and significance of transactions with related
parties and assesses their propriety;
- Certify the integrity and quality of the corporation's financial
information including financial information provided to oversight,
external audit and shareholders;
- Control the independence, objectivity, scope and quality of the
external audit.
The committee will also assume responsibility for disclosure of details
of amounts paid for non-audit services and a general statement as to the
independence of the auditor.
