Board committees and their functions

Board committees and their functions

The board of directors of an organisation has the ultimate control and management of an organisation. In order for the board to provide its oversight responsibilities effectively it uses board committees to deal with certain specific issues that require specialized areas of expertise.
The scope and responsibilities of each committee is defined by the board. Committees focus on specific areas and take informed decisions within the framework of their delegated authority, and make specific recommendations to the board on matters in their areas of specialisation after having reviewed the issues in great detail before placing them before the board for its consideration.

Committees therefore prepare the groundwork for the board’s decision making at the subsequent board meeting. The most common committees are: Audit Committee, Nomination and Remuneration Committee, Risk Committee, Governance and Compliance Committee (although each organisation can structure the committees differently). We will discuss the functions of all two of these committees in detail below.
The Audit Committee’s responsibility is to assist the Board of Directors in its oversight over the integrity of the financial statements of the organisation, the effectiveness of the internal controls over financial reporting, verifying external auditors qualifications and their independence, the performance of the company’s internal audit function and of the independent external auditors, ensuring the company’s compliance with legal and regulatory requirements and checking the performance of the company’s compliance function.

The committee should consist of at least three directors who are independent non-executive directors — independent of management. The committee members should be suitably skilled and experienced.
The committee should aspire to have at least one member who is a financial expert. If the committee does not have a financial expert it should be permitted by the board to consult with specialists or consultants.
The audit committee should be chaired by an independent non-executive director. The chairman should participate in setting and agreeing the agenda of the committee. The Committee should meet at least quarterly and any times that the members of the committee deem appropriate.

  • One of the meetings should be held before finalisation of annual accounts. The quorum should be either two members or one third of the members of the committee, whichever is higher.
    In performing its delegated roles for the board, the audit committee performs the following activities:
    Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.
  • Recommending the appointment and removal of the external auditor, negotiating the audit fee and also approval for payment of any other services.
  • Reviewing with management the annual financial statements before submission to the board,
  • Reviewing with the management, external and internal auditors, the adequacy of internal control systems.
  • Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the individual heading the department, reporting structure and frequency of internal audit.
  • Discussion with internal auditors any significant findings and follow up there on.
  • Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.
  • Discussion with external auditors before the audit commences about the nature and scope of audit as well as post-audit discussion to ascertain any areas of concern and
  • Reviewing the company’s financial and risk management policies.
    The next committee to be discussed is the Nomination and Remuneration Committee. Its primary role is to assist the board by identifying prospective directors and making recommendations on appointments to the board and the senior executive management. The committee also determines succession plans for the board and the senior executive management.
    When making recommendations on board appointments the committee has to ensure that it maintains a balance of skills and experience on the board and its committees. The other roles of the Nomination and Remuneration Committee are:
  • to decide and approve the terms and conditions for appointment of directors and the remuneration payable to all directors,
  • to recommend to the Board, the remuneration packages of the company’s Managing Director and other Executive Directors,
  • to determine on behalf of the Board of Directors and on behalf of the shareholders, the Company’s policy on specific remuneration packages for Company’s Managing Director and Executive Directors
  •  to review the overall compensation policy for Non-Executive Directors and Independent Directors and make appropriate recommendations to the Board of Directors;
  • to make recommendations to the Board of Directors on the increments in the remuneration of the Directors;
  • to assist the Board in developing and evaluating potential candidates for senior executive positions and to oversee the development of executive succession plans;
  • to review and approve on annual basis the corporate goals and objectives with respect to compensation for the senior executives and make appropriate recommendations to the Board of Directors;
  • to review and make appropriate recommendations to the Board of Directors on an annual basis the evaluation process and compensation structure for the Company’s senior executives just below the level of the Board of Directors;
  • to provide oversight of the management’s decisions concerning the performance and compensation of other officers of our Company;
    The Risk Committee and the Governance and Compliance Committee will be covered in the next article.

Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship.
He is the Managing Consultant of Shekina Consulting (Pty) Ltd and provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing organisations.
For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062.

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