Board Committees and their importance

Board Committees and their importance

Corporate Governance has been defined as the system by which companies are directed and controlled. The Board of Directors is responsible for the governance of their organisation and is appointed by shareholders and their responsibility is to act in the best interest of all stakeholders.
The board’s responsibilities include setting up of the company’s strategic objectives, providing the leadership to put the strategies into effect, supervising the management of the business and monitoring its performance and achieving an adequate return for shareholders, while preventing conflicts of interest and balancing competing demands on the organisation.

The board reports on its stewardship responsibility to the shareholders at an annual general meeting. The responsibilities cast upon the board of directors are quite onerous and varied as the ultimate control and management of the company vests with the Board.
With so much demands being placed on boards by regulatory bodies, shareholders, other stakeholders and the public in general, boards need to make the most efficient use of their time and make well thought out decisions. Boards are therefore resorting to using board committees to deal with specific issues that require specialized areas of expertise. Committees provide a practical way to structure and manage the board’s work. A committee would normally be comprised of a few members of the board who are tasked to deal with certain issues that might not be dealt with efficiently by the full board. The scope and the responsibilities of each committee is defined by the board.

The board committees are appointed by the Board to focus on specific areas and take informed decisions within the framework of delegated authority and they then make specific recommendations to the Board on matters in its area of expertise. All decisions and recommendations of the committees are tabled before the Board for approval or for information. Committees are therefore accountable to the board and should submit timely reports to the full board.
There are some benefits derived from establishing board committees.
Certain board issues are of such a complex nature that they demand substantially more time than a board can commit to during the course of one or two board meetings. A committee set for this purpose will be able to efficiently and effectively deal with the task on behalf of the board.

A committee is smaller than the full board and therefore allows board members the proper time required to research various issues and permits broader participation by all members of the committee.
Having a committee assigned to carry out some assignments for the board will provide accountability since committee members will be directly accountable to the full board for completing the tasks. Committees have dedicated time for addressing agenda items, and so the board expects them to conduct due diligence and be thorough in dealing with complex issues, yet do this timely. After dealing with issues, the committee will then provide comprehensive information that will help the board make informed decisions on specific issues.

Having committees of the board has some downsides as well. Decision making can take longer than normal. Some organisations have too many committees which can result in some of these committees having little work to do.
To make a committee effective, the board should ensure that the committee has clear terms of reference and defined goals which are enshrined in the committee’s charter, it should have a chair who is able to involve all members in the committee, it should work with members who are committed and willing to spend the needed time to accomplish their tasks, it should have an understanding of time constraints and deadlines and should understand that it does not make decisions; rather it advises, recommends, or carries out a task on behalf of the board. The committee should be evaluated regularly.

There are various committees that the board can set up. The most common ones are: Audit Committee, Nomination and Remuneration Committee, Risk Committee, Governance and Compliance Committee. We shall discuss the functions of all these committees in detail 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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