Directors Dialogue on the Role of Board of Directors (BoD) Committees on the 28th of April 2022 from 14:00 to 18: 00 CEST.

The boards of most organisations often delegate work to committees of directors to more effectively deal with complex or specialised issues and use directors’ time more efficiently. The established Committees make recommendations for action to the entire board, which retains collective responsibility and is accountable for all decisions.

Deepen the knowledge of the company by involvement in committees, become more actively engaged and fully utilise their experience. Additionally, committees can indicate to investors that the board is taking certain specific issues seriously.

The boards are often relatively small, and operations are not as complex as more minor without a formal committee structure.

Required by Law and the Regulators. (Check the rules and regulations in your country. Below are some generic remarks to address global BoD Committee issues).

Identify the legal basis for establishing the committee to delegate some of the BoD unless the company’s constitution disallows it. The delegation must be documented and recorded in the minute book.

 

The Committee Principles work on an ‘if not, why not.’

However, while BoD delegates power, they remain responsible for exercising power by trusting that the directors themselves had exercised it.

The delegation of authority does not lessen the board’s overall duties and responsibilities; however, in some instances and with limited exceptions, the BoD will not be held accountable.

  • if that director had reasonable grounds and in good faith
  • had made enquiries but reasonably relied on the information or advice provided,
  • the committee guidance was independently assessed

Structure – typically 3-4 members, only non-executive directors, majority of independent directors, an independent chair who is not the chairman;

Charter – the committee will have a formal charter;

Meetings – as needed to undertake its role effectively. Meet before, after, or in between regular BoD meetings;

Minutes – documented and circulated to the entire board.

 

 

The Committee Charter usually will state:

  • Role, purpose and responsibilities
  • Scope of authority, the extent of power and decision-making capabilities
  • Membership requirements and procedure for attendance by non-committee members
  • Frequency, Composition and structure
  • Access to internal and external resources and expertise
  • Reporting to the board
  • Special powers of the committee chair
  • Tenure of the members
  • Evaluated annually to ensure focus and fulfilling its functions

Other issues to be addressed by the BoD:

  • Should the Committees Be evaluated with performance evaluations?
  • Does sitting on a committee carry additional legal liability?
  • Oversee that the delegates exercise power in conformity with the charter and is reliable and competent

 

Audit Committee

Companies without an audit committee should have the BoD processes to raise the issues that the audit committee would otherwise consider and disclose how their alternative approach assures the integrity of its financial statements and the external auditor’s independence and why an audit committee is not regarded as appropriate.

Comply with the best practices, recommendations or mandates set by an official oversight authority to

comply with the best practice recommendations and take steps to comply with those recommendations within a specified time.

The functions of the audit committee include:

  • To ensure adequacy and integrity of the financial reporting systems;
  • To monitor and evaluate the adequacy of internal controls;
  • To review and agree on the annual audit plan;
  • To oversee the appointment, performance and independence of the external auditor.

The main functions of the remuneration committee include:

  • To review policies and practices and make recommendations on remuneration, recruitment, retention and termination of directors, the CEO and senior executives;
  • To ensure the company makes the necessary disclosure regarding remuneration
  • To be responsible for the adoption of the remuneration report
  • Superannuation arrangements
  • Recommendations as to remuneration by gender

The main functions of the Nomination Committee include:

  • Minimum of 3-4 directors, the majority are independent and chaired by an independent director
  • To assess the BoD organization, skills, knowledge and experience
  • To assess and review directors’ initiations, performance and development
  • To ensure succession planning for the board and key executives
  • The components of the Committee Charter
  • To facilitate operations, a clear purpose outlined in a written charter.

How and what should a Committee report to the board?

  • Addressed in the committee’s charter
  • The minutes must capture the critical deliberations and action points with recommendations for the board to approve, endorse, or decide.
  • Included in the board papers for the next full board meeting
  • Highlight the issues, options and recommendations for decision or approval.
  • Timings on how to report, a present verbal summary of key points documented by minutes.