An effective Board is the hallmark of good Corporate governance. Board Committees enables the Board achieve greater efficiency in the performance of its oversight functions and strengthening the governance structure.
Principle 11 of the Nigerian Code of Corporate Governance 2018 provides that “to ensure efficiency and effectiveness, the Board delegates some of its functions, duties and responsibilities to well-structured committees without abdicating its responsibilities”.
Beyond regulatory compliance, Board Committees if properly structured are indeed quite useful to the overall efficiency and effectiveness of the Board. The need for Committees is premised on the need for the Board to focus on more strategic issues and leave Committees to deal with specific matters, take informed decisions within the framework of delegated authority and make recommendations to the Board.By delegating tasks to Committees, Boards can spend the time more efficiently on strategy.Committees are at liberty to seek independent professional advice at the expense of the company and seek clarification from senior management as required.
Committees prepare the groundwork for decision making and report at the subsequent Board meetings. All decisions and recommendations are placed before the Board for information or for approval.
An effective Board is composed of Directors with diverse experience, skills and expertise. To maximize the benefits of this diversity, Committees should comprise of Directors with relevant skills and competences in specific areas. Membership of Committees also affords Directors the opportunity of gaining better insight into the business of the company in respect of which they have oversight responsibilities.
To ensure the effectiveness of the Committee structure, the Board should ensure that Committees are composed of Directors with the relevant skills and who are able to devote sufficient time to Committee work. The Board should also ensure that the requisite information is made available to its committees timeously. Below are some of the elements that would ensure Board Committee efficiency:
Committee Charters: It is recommended that Board Committees have specific Charters or terms of reference setting out their roles and responsibilities in the area of membership, quorum, scope of work, as well as authority and reporting obligations.
Effective Committee Chairs: As with the Chairman of the Board, the role of the Committee Chairman is an important one and the effectiveness of the incumbent ultimately determines the effectiveness of the Committee. Thus the Board should carefully select Committee Chairs, taking cognizance of availability, strength of character, relevant skills set (knowledge, experience, proven leadership and people’ management) respect from peers, etc.
Accountability to the Board: The Board must clearly communicate to Committees, its expected reporting format, substance and frequency of receiving such reports. Usually, the expectations of the Board are encapsulated in the Committee Charters. The Board should ensure that the performance of its Committees is evaluated annually to ensure that they continue to be effective.
An emerging trend that makes for even greater effectiveness is the attendance of non-Committee members of the Board at Committee meetings. This practice ensures that deliberations at the Board meeting are more inclusive as the non-Committee members would have had the benefit of the reasoning that went into recommendations by the Committee to the Board. To retain the utility of the Committee system, it is important that the composition be refreshed periodically whilst ensuring that Directors with relevant expertise and experiences are on Committees to which their experience and qualifications are best suited.
To facilitate adequate oversight, the Code recommends that the Board should establish committees responsible for Nomination and Governance, Remuneration, Audit and Risk Management .It may combine any of these responsibilities on Board committees, taking into consideration the size, needs and other requirements of the Bank. Each committee should be composed of at least three members.
The Committee responsible for nomination and governance is to oversee the annual performance evaluation of the Board and establish a formal criteria and transparent process for Board appointments, re-appointment and recommendation of suitably qualified members to the Board or its committees as well as have an input into Succession Planning. The Committee should work with the Company Secretary to arrange induction and training programmes for Directors. A recent publication from the Institute of Chartered Secretaries and Administrators summarizes the role of the nomination committee as having three priorities: developing the talent pipeline; broadening the search for future directors; and looking at the long-term strategy and resourcing accordingly.
The Committee responsible for remuneration is required to develop and recommend to the Board, a formal, clear and transparent framework for the Company’s remuneration policies and procedures. All, or a majority of, remuneration committee members should be Independent Directors, and Executive Directors are excluded. Members must keep independence, transparency and potential conflicts of interest at the front of their minds when deciding on pay arrangements. While there is no single method to solving remuneration problems for all companies, the design of remuneration policies should be linked to the achievement of the Company’s long-term success.
The Board Audit Committee recommended by the Code is separate from the Statutory Audit Committee required by Section 359 (3) of the Companies and Allied Matters Act (CAMA). The Code clearly states the functions of the Statutory Audit Committee as required by CAMA and recommends additional responsibility for the Board Audit Committee. The Code recommends that all members of the Committee should be financially literate whilst at least one member should be a financial expert. The Board Audit Committee is specifically required to ascertain the integrity of the Company’s financial statement, assess the independence of the external auditors, develop and oversee the internal audit function. The Committee oversees the relationship with external auditors to ensure the quality of the company’s financial statements.
The Committee responsible for risk management establishes the risk management framework and policies and recommends for approval of the Board. The Committee should review the level of the Company’s compliance with regulatory requirements and also conducts an annual review of the Company’s Information Technology (IT) data governance framework to mitigate IT data risk. The decision whether the Board should establish the committees as stand-alone or to merge the functions largely depends on the needs of the Company.
When used effectively, Committees enhance the Board’s ability to carry out its mandate. It is however key to note that while the Board may delegate some responsibilities to Committees, the Board as a whole retains ultimate oversight responsibility over the affairs of the Company whilst Committees would make recommendations to the Board based on extensive consultations and deliberations, the Board has to approve such recommendations before they become effective.
Bisi Adeyemi is the Managing Director, DCSL Corporate Services Limited. Kindly forward comment(s) and reaction(s) to [email protected]. For more articles, kindly download the DCSL Knowledge Hub via this link – https://www.dcsl.com.ng/index/pages/page/dkhub