A committee is a group of one or more individuals in an organisation made to serve a certain role. Board committees are standing committees that are subsidiaries of the board of directors. These are primarily composed of members of the board. Board committees are made to serve a more specific purpose compared to the board in total. A board committee may be called to advise the board on particular areas of business.
Common types of board committees formed by an organisation include:
An executive committee is a small group of board directors appointed to act on behalf of the entire board. It serves as the steering wheel for the board and facilitates decision-making in meetings, crises and urgent matters. It typically includes the chairperson, vice-chairperson, treasurer and secretary.
An audit committee is created to supervise financial statements and reports. In order to run successfully, an audit committee must also include those well-versed in finance and accounting outside of the board of directors.
A compensation committee is usually made up of independent directors. Its role is to establish pay rates for senior managers and manage all aspects of overall compensation, including profit sharing, stocks and bonuses.
A nomination and corporate governance committee is established to assess corporate governance exercised by the board of directors. It is also responsible for determining the skills and characteristics necessary to serve on the board. These committees can fulfil other roles depending on the organisation. They often include the chair, deputy chair and the CEO.
The finance and risk committee is responsible for supervising financial management and the risk control practices of the organisation. It offers guidance to the board to ensure that company resources are utilised efficiently and in line with the company’s objectives and policies. The finance and risk committee usually consists of executive and non-executive directors of the board, especially those with finance and risk management expertise.
Board committees offer an organisational capability — a practical way to give order to the board’s purpose. Simultaneously, they offer flexibility and allow the board to adapt to the fluctuating needs of the environment. Here are some core functions of board committees:
- Oversight responsibilities: The board of directors performs oversight functions through well-planned board committees. Oversight responsibilities of board committees involve evaluating projects, policies and plans to ensure they comply with the organisation’s goals, exhibit value for money and deliver results.
- Decision-making powers: Board committees are essential decision-making entities. Their purpose is well-understood when the board has a lot of members and is unlikely to make effective choices. This job is often undertaken by the executive committee that handles most of the policy decisions in business meetings.
- Recommendations to the board: One of the primary functions of board committees is to give advice and make recommendations to the board concerning capital distribution, risk indicators, needs of the board and more.
Members of board committees can be chosen by the chair of the board or by the entire board. Here are the protocols for the membership of board committees:
- Composition of committee members: The composition of committee members should be an optimal combination of skills and knowledge while also considering varying ages, ethnicities and genders. It’s crucial to include individuals well-versed in business, accounting, law and marketing, depending on the type of committee.
- Appointment of committee chairs: The nominations and corporate governance committee is responsible for reviewing the candidates based on their skill set and experience and finalising the eligible ones for the position of chair. The board votes for their preferred candidate, and the person with the most votes is taken to the Trustees for final approval.
- Role of independent directors: To appoint the role of an independent director, the board first verifies that the candidate possesses the right skill set and experience to carry out the designated duties efficiently. The appointment is then approved at the meeting of the shareholders. An explanatory statement and a letter of appointment are issued to finalise the process.
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