Board Committees – Important step towards Good Governance

Board Committees An important step towards Good Governance is to have well appointed Board Committees. While various regulations have extensive references and guidelines, here is a quick snapshot of the must-haves.

Note that a well governed Board functions efficiently with well appointed Committees. Key Board Committees are:

  • Nomination Committee
  • Audit Committee
  • Remuneration (Compensation) Committee

Nomination Committee

i. Companies may have a Nomination Committee comprising of majority of Independent Directors, including its Chairman. This Committee should consider:

  • Proposals  for  searching,  evaluating,  and  recommending appropriate Independent Directors and Non-Executive Directors [NEDs], based on an objective and transparent set of guidelines which should be disclosed and should, inter-alia, include the criteria for determining qualifications, positive attributes, independence of a director and availability of time with him or her to devote to the job;
  • Determining processes for evaluating the skill, knowledge, experience and effectiveness of individual directors as well as the Board as a whole.

ii. The Nomination Committee should also evaluate and recommend the appointment of Executive Directors.

iii. With a view to enable the Board to take proper and reasoned decisions, Nomination Committee should ensure that the Board comprises of a balanced combination of Executive Directors and Non-Executive Directors.

iv. A separate section in the Annual Report should outline the guidelines being followed by the Nomination Committee and the role and work done by it during the year under consideration.

Audit Committee

The Audit Committee should have at least three-members, with majority being Independent Directors & the Chairman of the Committee should be an Independent Director. All the members of the audit committee should have knowledge of financial management, audit and accounts.

The Audit Committee should have the power to –

  • have independent back office support and other resources from the company;
  • have access to information contained in the records of the company; and
  • obtain professional advice from external sources.

The Audit Committee should also have the facility of having separate discussions with both internal and external auditors as well as the management.

The Audit Committee should have the responsibility to –

  • monitor the integrity of the financial statements of the company;
  • review the company’s internal financial controls, internal audit function and risk management systems;
  • make recommendations in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
  • review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process

The Audit Committee should also monitor and approve all Related Party Transactions including any modification/amendment in any such transaction.

Remuneration (Compensation) Committee

The Remuneration Committee should comprise of at least three members, majority of which should be Non Executive Directors & at least one Independent Director.

  • The Committee should have the responsibility of determining remuneration for all executive directors and the executive chairman.
  • The Committee should also determine principles, criteria and the basis of remuneration policy of the company which should be disclosed to the shareholders, with their comments, if any.
  • The Committee should also recommend and monitor the level and structure of pay for senior management
  • The Committee should make available its terms of reference, its role, the authority delegated to it by the Board, and what it has done for the year under review to the shareholders in the Annual Report.

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