CIMA BA4 Syllabus B. CORPORATE GOVERNANCE - Board Committees - Notes ^{6 / 7}

Importance of committees

Many companies operate a series of board sub-committees responsible for supervising specific aspects of governance.

• Reduces board workload

• Use inherent expertise

• Communicates to shareholders that directors take these issues seriously.

• Communicates to stakeholders the importance of remuneration and risk.

Nominations committee

Advises on:

1. The balance between executives and NEDs

2. The appropriate number and type of NEDs on the board.

Nominations committee - Roles

• The nominations committee is usually made up of NEDs.

• It establishes the skills, knowledge and experience possessed by current board

• Notes any gaps that will need to be filled

• Looks at continuity and succession planning, especially among the most senior members of the board.

• Is responsible for recommending the appointments of new directors to the board

Risk committee -Roles

• Considered best practice by most corporate governance codes

• Helps Investor confidence

• Should be made up of NEDs

• Requires good information systems to be in place

• Reviews effectiveness of internal controls regarding risk

• Is responsible for overseeing risk management

Remuneration Committee - Roles

• Determine remunerations policy, acting on behalf of shareholders but benefitting both shareholders and the other board members of the board

• Ensure that each director is fairly but responsibly rewarded for their individual contribution in terms of levels or pay and the components of each director’s package.

  It is likely that discussions of this type will take place for each individual director and will take into account issues including market conditions, retention needs, long-term strategy and market rates for a given job.

• Reports to the shareholders on the outcomes of their decisions, usually in the corporate governance section of the annual report

• Be compliant with relevant laws or codes of best practice.

• Is responsible for advising on executive director remuneration policy

Audit Committee - roles

• to enhance audit quality

• to build confidence in the integrity of financial reporting

• to create the right environment for quality auditing

Audit Committee - responsibilities

• to create an environment that accommodates an open discussion in a culture of integrity, respect and transparency between management and auditors

• to oversee the work of the auditors

• to understand the audit strategy, be satisfied that it addresses the major audit risks

• to make sure the auditors exercise appropriate professional skepticism.

Audit Committee - the purpose

The Audit Committee shall assist the Board of Directors in:

• the oversight of the integrity of the financial statements of the Company,

• the effectiveness of the internal control over financial reporting,

• the independent registered public accounting firm’s qualifications and independence,

• the performance of the Company’s internal audit function and independent registered public accounting firms, and

• the Company’s compliance with legal and regulatory requirements