What Is a Board Committee?
A board committee is a small group formed from the Board of Directors of a company. These
committees are created to focus on specific areas that require specialized knowledge or
continuous attention, allowing the full board to operate more efficiently and make better
decisions.
🔹 Why Have Committees?
The board of directors has a lot of responsibilities: strategy, oversight, finances,
compliance, ethics, etc.
A full board may not have time to study every detail in all these areas.
So, companies divide these duties among committees, which can meet more often and
go deeper into specific topics.
Common Board Committees (With Roles):
1. Audit Committee:
o Ensures financial reports are accurate.
o Works with external auditors.
o Oversees internal controls and compliance.
2. Compensation (or Remuneration) Committee:
o Sets salaries and bonuses for top executives.
o Ensures pay is tied to performance.
o May also handle stock options or incentives.
3. Nominating and Governance Committee:
o Recruits and recommends new board members.
o Makes sure the board operates ethically and legally.
o Oversees corporate governance guidelines.
4. Risk Management Committee:
o Identifies and monitors key business risks.
o Recommends risk mitigation strategies.
5. ESG or Sustainability Committee:
o Focuses on environmental, social, and governance issues.
o Ensures the company meets sustainability goals.
What Is Corporate Governance?
Corporate governance is the system by which companies are directed and controlled. It
balances the interests of the company's many stakeholders—such as shareholders,
management, customers, suppliers, government, and the community.
🔹 Goals of Corporate Governance:
Ensure transparency (nothing hidden from investors).
Ensure accountability (directors and managers are answerable for their actions).
Promote fairness (all shareholders treated equally).
Ensure ethical conduct and compliance with laws.
🔹 Core Principles:
1. Board Structure and Responsibility:
o The board oversees management and protects shareholders’ interests.
2. Transparency and Disclosure:
o Timely, honest, and full disclosure of financial and operational data.
3. Rights and Fair Treatment of Shareholders:
o All shareholders should get equal treatment and access to information.
4. Accountability of Management:
o Managers must act in the best interests of the company, not themselves.
5. Ethical Conduct and Legal Compliance:
o Governance includes following ethical standards, laws, and regulations.
✅ How Are Board Committees and Corporate Governance Related?
Board committees are an essential part of implementing good corporate governance.
They:
Help the board manage complex areas like finance, risk, and ethics.
Make the governance system more effective by focusing on specific issues.
Increase transparency, independence, and accountability within the organization.
🔹 Example:
Let’s say a company is preparing its annual financial report.
The Audit Committee reviews the report, meets with external auditors, and ensures
there’s no fraud or misstatement.
This helps maintain financial transparency—a key part of corporate governance.
The full board relies on the audit committee’s work to confidently approve the report
and present it to shareholders.
