A Board committee is a small group of Board members, identified by the Board, for the purpose of diving deep into specific tasks/ assignments that are assigned to it by law or by the Board. Members of the committee are expected to have an understanding of specific fields relating to the work of the committee. In some cases, law may prescribe the basic expertise that is expected of the members.
The role of the committees is to deliberate on the specific items of work that they are tasked to perform. They then either make recommendations to the Board, for the desired action, or place some items, on which the committee concerned has already taken action, for the information of the Board. However, the Board of Directors is ultimately responsible for the acts of the committee, since these committees are all committees of the Board.
With the items that the Board has to deal with increasing almost on an ongoing basis, most Boards perform many of these functions through committees, who are in a better position to dive deep into specific matters.
In India, the mandatory Board level committees are –
- Audit Committee – which inter alia looks at the financials of the company and interacts with the Statutory auditors and the Internal auditors.
- Stakeholders Relationship Committee – which inter alia looks at the concerns and interests of various stakeholders of a company.
- Nomination and Remuneration Committee – which inter alia looks at nomination and remuneration of both Directors and senior management personnel, as also at Board evaluation and succession planning for key positions.
- Corporate Social Responsibility Committee – which inter alia looks at the company’s responsibilities towards Society as a stakeholder.
- Risk Management Committee – which inter alia looks at risks, and how the company can mitigate/ manage them.
In addition, the Board can set up other committees for ad hoc tasks.
Membership of each committee
Law has provided some basic parameters for composition of each Committee. This includes the minimum number of members, the category of Director who can/ cannot be on a committee, whether or not the Chair of the Board can be on a committee etc.
The Chair of the committee is chosen by the Board from the members of the committee. He/she is the key to ensuring that the committee functions effectively. He/she sets the tone at the meetings, and plays a major role in setting the agenda for the meetings.
While choosing a member for any committee, area of knowledge, expertise and time commitment of a Board member should be considered by the Board.
In addition to the members of each committee, there are some persons from management who help in the smooth functioning of each committee. These are the functional heads of the tasks that the committee would deal with, such as the Chief Financial Officer for Audit Committee, the Chief of Human Resources for Nomination and Remuneration Committee, etc. Also, the Company Secretary is the Secretary of every Board level committee and is responsible for keeping the minutes of the meeting. In addition to these persons, there could be some persons who are invited to the committee meetings only for specific agenda items. These persons are called invitees to the meeting, and they are present in the meeting only for the specific item for which they are invited.
Increasingly, some committees have also started having permanent invitees to their meetings. These persons join every committee meeting, even though they are not members of the committee. It would be desirable to minimize this practice and to invite relevant persons on a meeting-by-meeting basis.
Like Board composition is a basic building block for ensuring the effectiveness of the Board, the composition of each committee is vital for its effective functioning. A wrongly constituted or underperforming Committee could adversely impact the performance of the Board.