Committee effectiveness

Board committees are an important aspect of governance at the top of an organisation. If the board is to be able to focus on strategic issues there are other key matters which need to be properly addressed with adequate time spent on them, without detracting from the main board agenda. So committees that function well can add much value – and the contrary is also true – dysfunctional committees can create real problems.

Which committees do you need?

For most plcs – and many other organisations, there are three key board committees – audit, remuneration and nomination.

The audit committee will usually cover risk, although for many regulated organisations such as banks, there will often be a separate board risk committee.

You may see other committees – an ESG or equivalent committee is becoming more common as there is so much to consider and this allows the board to maintain some oversight. Some boards choose to have a governance committee (which may be combined with the nomination committee). As a governance professional I absolutely endorse having good governance practices but boards should be careful not to overdo it. Regular governance reviews and board effectiveness reviews should mean that a full on governance committee isn’t really necessary – see further comments below.

Who should be on them?

Each committee will require members with a certain level of expertise. A skills analysis (see my article) should identify where this expertise lies within the board as well as any gaps where some board briefings would be useful. This can help to ensure that all committee members have sufficient knowledge to make informed decisions themselves rather than being overly reliant on advisers.

Best practice is for the audit and remuneration committees to be comprised of independent NEDs only. The CEO may be a member of the nomination committee. However, the CFO would be expected to attend audit committee meetings and the Head of HR would typically attend remuneration committee meetings. Careful advance agenda planning is essential to get this to work smoothly, particularly for the remuneration committee, where you may need some commentary from the CFO on targets and input from the CEO for other executives but neither should be present when their own remuneration is discussed. Regular communication between the committee secretary and the committee chair in the run up to the meeting can aid this process.

Meetings

As for any meeting, a clear agenda, sufficient time for questions and debate on items before the committee are required to make your committee meetings run well. Committee chairs may have been appointed for their particular background knowledge but that will not necessarily make them a skilled chairperson. Board effectiveness reviews should draw this out, however it is obviously better if any emerging issues are tackled as soon as they become apparent. Some coaching from the board chair, SID, or an outside adviser can be beneficial, particularly for someone who has not had to fulfil such a role previously.

Delegation and reporting back

Clear delegation is key, so that the committee members understand their remit. Terms of reference should be in place and regularly reviewed. The committee secretary can assist the committee chair in making sure all areas which are within the terms of reference are covered at appropriate times. Good practice is for minutes of committee meetings to go to the next following board meeting for noting (subject to any issues of confidentiality or potential conflicts of interest). The committee chairs may be asked to give a brief report at the board meeting but this should focus on a few main issues and not be a repeat of the debate at the meeting.

When is a committee not a committee?

It is important to have a clear and purposeful governance framework in place, to allow the organisation to get the most out of the expertise of the directors in the time available. Some committees will be better kept within the executive – for example an ESG committee might be best handled in that way. There may be other projects where a temporary “working group” is the best option – for example if there is the need to review the governance framework and documents from time to time. The group should have a specific set of tasks and outputs to be delivered within an agreed timeframe. It can then be disbanded leaving time and energy for whatever is the next challenge.

Conclusion

Well run committees can contribute much to board effectiveness. There should be some consideration of how effective they are during your board review. Agreed actions for improvement can be included on the overall action plan from the review.