The Role of Board Committees in Corporate Governance
Committees play an important role in a board of directors fulfilling its fiduciary corporate governance obligations, including its duty of care. Committees enable board members with particular expertise to oversee specialized areas of the business, and improve the productivity of the board of directors by meeting offline and reporting back their findings. The most common standing committees include audit, which is the oversight of the accounting and financial reporting of the company, and compliance with legal and regulatory requirements and adherence to ethical standards; compensation, which is the oversight of executive compensation and other human resource matters of the company, and; nominating/governance, which is the oversight of corporate governance and board member effectiveness, and board of director succession planning matters. Depending on the business structure and industry-served other standing committees can be formed to further leverage board member expertise and time. Situations may arise where circumstances dictate an “ad hoc” board committee to address a particular matter of sufficient complexity. Examples include an M&A transaction, bank (re)financing, legal matter, large capital investment, etc. In these episodic situations the board committee exists for the duration of the matter, and is staffed with board members with experience in the matter at hand.