Good governance is at the heart of a high-performing and compliant organization. This applies equally to for-profit businesses (‘corporate governance’), non-profits and public sector organizations. While overall responsibility for good governance lies with the board of an organization, the governance committee also has a central role.
In this article we set out:
- How the committee structures of boards work;
- The responsibilities of the governance committee;
- The composition of the governance committee;
- Who the committee reports to;
- How appointments, removals, and resignations from the committee are managed;
- Frequency of committee meetings
How does the committee structure of a board work?
Most organizations have a board with overall responsibility for the organization. In some countries, such as China and Germany, there is a two-tier board system, with a supervisory board and a management board. In either system, a central role is played by board committees.
Board committees provide specialised analysis and advice on particular areas within the board’s scope of responsibility, usually reporting back to the full board for further action.
Sometimes it is up to the board itself to establish which committees it needs. In other cases, law or industry standards might require that certain committees be in existence. Common board committees include the:
- Audit committee. This focuses on oversight of financial reporting (external audit), but also has responsibility for reviewing internal controls (internal audit). As well as engaging with external auditors, the audit committee finalises an internal audit plan, and assesses internal audit reports;
- Remuneration committee. This makes recommendations on executive and director fees, benefits, and permissible expense claims;
- Compliance committee. This has overall responsibility for the compliance management system in the organization;
- Risk committee. This considers ongoing financial, operational, compliance, and legal risks, and how they are managed by the organization;
- Governance committee. We consider this committee in detail below.
What are the responsibilities of a governance committee?
A governance committee has a range of different functions. What unites these functions is a supervisory role towards the board itself. Just as the board supervises the organization as a whole, the governance committee has oversight of the board and whether it is following its own rules or compliance obligations. Specifically, in this role , the committee often:
- Monitors whether the board is complying with its obligations as set out in the organizations constitution, articles, or bylaws;
- Recruits new board members. They may develop a recruitment plan and establish job descriptions for this purpose;
- Makes recommendations on retention, re-election, removal, or resignation of board members;
- Organizes ongoing training and development for board members;
- Reviews periodically the existing constitutional documents of the organization, and recommends updates where necessary;
- Monitors board structures and processes. This includes advice on the desired size and composition of the board and its committees, as well as development of committee charters;
- Advises how to deal with potential conflicts of interest of directors.
Whatever the responsibilities of a governance committee are, these should be clearly set out in a governance committee charter.
Who should be on the governance committee?
A variety of different directors may be suitable for the this committee. Due to its significant oversight function, this committee should have a number of non-executive directors.
The company secretary, the organizational officer responsible for corporate governance, might be a useful member of this committee. Where they are not a member of the committee, they will act as an important liaison between the governance committee and the management of the organization.
The number of members will depend on the size of the full board. But it is recommended for a committee to function well, that there be at least three members.
The committee should form a view on who should be its chair, and then make a recommendation to the board for final approval.
Who should the governance committee report to?
The governance committee, as with all board committees should report to the full board. The board should, on a periodic basis (e.g., annually) review the performance of the governance committee.
Appointments and removals
The board appoints the members of the governance committee. They will also usually have the power to remove members from the committee at any time. At the same time, the board will make replacements at the recommendation of the committee itself.
How often should the committee meet?
It should meet at least four times a year, but ideally it would meet more often than this.
An important component of good organizational governance is setting up the right committees for your board. Establishing responsibilities for the governance committee is an important part of this.
Both in its own operations, and in the processes it recommends for the board as a whole, governance committees should consider the value of board portal software. This enhances collaboration and efficiency in the committee and board meetings, and ensures that full and compliant records are kept of all board and committee activity.