SCHOOL OF LAW - PARKLANDS LAW CAMPUS

CORPORATE GOVERNANCE

BLW 3208

14TH July, 2025.

CAT 2Board committees are small groups of

talented and experienced individuals, some of
whom are individual directors, appointed to help
the board of directors attain its objectives. These
individuals are handpicked based on skill,
knowledge, and expertise. They are expected to
come up with solutions that could help directors
address their points of concern.

while the entire board makes key decisions, the committees provide key guidance.

Role of Board Committees

Board committees play an integral role in an organization, especially for the board of directors. That
includes the following:

a. Oversight Functions: Well-planned committees handle various oversight responsibilities,

including project evaluation, policy compliance, and strategic planning to ensure everyone
complies with the organization’s goals. In the long run, board committees deliver results, and
that’s only attainable through proper oversight.
b. Decision-Making Functions: Though board committees are subordinate to the board of
directors, which is the apex decision-making entity in a corporate setting, the fact that the
board committees are made up of a few individual directors means they still have some
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 decision-making powers. The executive committee, in particular, handles most of the decision-
making on behalf of the other committees.
c. Board Advisory Functions: Board committees help the board of directors address issues on
risk indicators, corporate governance, capital distribution, or any other area. Once they develop
practical solutions and suggestions, they advise the board accordingly.
d. Board Delegated Functions: Sometimes, the board of directors may have more on its plate
than it could accomplish, resorting to delegating some of it to the board committees. So,
ideally, board committees execute jobs assigned to them by the board of directors

Main Benefits of Board Committees

Establishing board committees may be the best decision for a board of directors as it comes with these
benefits:

a. Varying viewpoints: Board committee members come from different backgrounds and
professions, which means they have varying perspectives and opinions. As a result, the
members can offer various suggestions to address the organization’s issues.
b. Reduced workload (on the board): The fact that committees are in place means that the
board of directors doesn’t have to handle everything. They can delegate some of the work to
the board committees, which reduces their overall workload and improves their efficiency. It
allows the board to pay more attention to more pressing matters.
c. Improved efficiency: Some board issues may require more attention and time than the board
can offer. In such a case, a committee can give the project the attention it needs and allocate it
the right amount of time, which helps to maximize work efficiency. In the long run, there’s
more in terms of output.
d. Enhanced expertise: Board committees bring together experts from different fields who can
collectively inject ideas and solutions that could help the board of directors. The board can then
base its decision-making on better expert advice.
e. Better accountability: Since board committees are established to address specific issues, they
are accountable to the board of directors for every decision they make concerning them. The
board expects them to exercise caution and due diligence when making decisions, and they
must be meticulous in their research.
f. Bolstered oversight: Because board committees comprise skilled and experienced members,
they can make a broader assessment and pay extra attention to the various issues they deal
with. Ultimately, that bolsters their oversight roles.

Membership of Board Committees

Ideally, board committees are either chosen by the board chair or the entire board of directors,
depending on the organization. Specific protocols, however, must be observed when appointing
members to board committees, which include the following:
 Committee composition: Board committees should comprise well-versed members in areas
like accounting, law, governance, business, and marketing. Moreover, these individuals should
be of varying ages, genders, and ethnicities to demonstrate inclusivity and fairness.
 Chair appointment: The board of directors identifies the most eligible candidates to chair the
various committees through the nominating committee and votes on them. The board then
forwards the final names to the trustees for approval.
 Independent directors’ appointment: The board of directors will also need to appoint some
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individual independent directors to the board committees. The board must ensure the individual
 directors have the proper skill set and expertise to contribute to the committees. Their
appointment is eventually approved during a shareholders’ meeting.

Board Committees Structure

Most board committees are structured in one of these two ways:
Option 1 – As Standing Committees
Standing committees, also known as operating committees, are established to continually serve the
board of directors. They are founded by the organization’s bylaws and in compliance with its customs
and policies to support the board of directors constantly.

They aren’t disbanded upon accomplishing a task, as another is always waiting.

Perfect examples of standing committees are:
 Executive Committee
 Governance Committee
 Audit Committee
 Budget Committee
 Program Committee
 Membership Committee

Option 2 – As Ad Hoc Committees

Ad hoc committees are established to serve the board of directors for a limited timeframe. They are
disbanded as soon as they accomplish their objective. Their terms usually last less than a year, but a
few may run for longer before their dissolution.

More often, ad hoc committees are instituted to amend an organization’s byways, develop its strategic
plan, form a subsidiary company, or relocate the company. They may also be formed to recruit a CEO,
launch another subdivision of the organization, or work with coalitions.
Ad hoc committees are sometimes founded to research a particular problem, develop possible
solutions, and recommend them to the board of directors. That is often the case when an organization
deals with failed membership, poor intra-organizational communication, and low sales.
Perfect examples of ad hoc committees include the following:
 Strategic Planning Committee
 Bylaws Committee
 Capital Campaign Committee

NOTE:
A board of directors doesn’t always have to establish a board committee when it wants something
accomplished with experienced hands and intelligent minds. Sometimes, it can set up a task force to
achieve the objective. A task force allows a board to accomplish a specific goal within a short period,
after which the board may dissolve it.
For example, a task force could be involved in planning a special corporate event or analyzing a
merger. Once they are through, they can share the findings with the board of directors. The board can
then decide what to do with the report.

BOARD COMMITTEES

1. Audit Committee: Sentinel of financial integrity.

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Audit Committee is the most important of the board sub-committees. It acts as an interface between
the external auditors and the board. To lessen the dominance of the senior executives in the audit
process, the committee is designed to comprise entirely or predominantly of independent non-
executive directors. Audit committee meets 3-4 times a year to discuss the details of the audit and
audit related matters including auditor’s fees and re-appointment of the auditors

Composition:

 Typically comprises independent non-executive directors.

 At least one member should possess financial expertise (OECD, 2015).
 Chaired by an independent director, not the board chair.

Powers of Audit Committee

The audit committee shall have powers, which should include the following:

1. To investigate any activity within its terms of reference.

2. To seek information from any employee.
3. To obtain outside legal or other professional advice.
4. To secure attendance of outsiders with relevant expertise, if it considers necessary.

Role of Audit Committee

The role of the audit committee shall include the following:

1. Oversight of the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
2. Recommending to the Board, the appointment, re-appointment and, if required, replacement or
removal of the statutory auditor and the fixation of audit fees.
3. Approval of payment to statutory auditors for rendering any other services.
4. Reviewing, with the management, the quarterly financial statements and the annual financial
statements before submission to the board for approval.
5. Reviewing, with the management, performance of statutory and internal auditors, and
adequacy of the internal control systems.
6. Reviewing the adequacy of internal audit function.

Review of Information by Audit Committee

The Audit Committee shall mandatorily review the following information:

1. Management discussion and analysis of financial condition and results of operations;

2. Statement of significant related party transactions submitted by management;
3. Management letters/letters of internal control weaknesses issued by the statutory auditors;
4. Internal audit reports relating to internal control weaknesses; and
5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be
subject to review by the Audit Committee

Importance:
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  Oversees the integrity of financial reporting.
 Monitors internal controls, risk management, and audit processes.
 Enhances transparency and accountability in financial matters.

Contribution to Corporate Governance:

 Promotes stakeholder confidence in financial disclosures.

 Ensures compliance with legal and regulatory frameworks.
 Reduces potential for fraud and financial misstatements.

Reference: OECD (2015), G20/OECD Principles of Corporate Governance, Principle V.D.7.

2. Nomination (or Nominations and Governance) Committee

Good corporate governance hinges on fairness and transparency. There should be a formal, rigorous
and transparent procedure for the appointment of new directors to the board. It is imperative that the
job of setting standards for nomination of directors, screening the probable candidates, and reviewing
their core competencies be assigned by the board to a sub-committee composed wholly or mainly of
independent directors. Such a committee called ‘nomination committee’ is quite prevalent in many
companies across the world.

It is regarded as the ‘best corporate governance practice’.

The nomination committee is responsible for formulating policy and making recommendations to the
board of directors on nominations, appointment of directors and board succession. The committee
develops selection procedures for candidates, and considers different criteria of selection including
appropriate professional knowledge and industry experience. The committee also reviews the size,
structure and composition of the board and assesses the independence of independent non-executive
directors. The committee is provided with sufficient resources enabling it to discharge its duties.

Composition:

 Mainly independent non-executive directors.

 Chaired by an independent director.

Role of Nomination Committee

The role of nomination committee includes:

1. Identifying and recommending to the board, nominees for membership of the board.
2. Identifying and assessing the necessary and desirable competencies and characteristics for
board membership and regularly assessing the extent to which those competencies and
characteristics are represented on the board.
3. Ensuring succession plans are in place to maintain an appropriate balance of skills on the board
and reviewing those plans.
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 4. Establishing processes and annually evaluating the performance of the board, both collectively
and individually.
5. Regularly reviewing the time required from non-executive directors to perform their functions
and assessing whether they are satisfying those time requirements.
6. Establishing induction programs for new directors.
7. Developing continuing education programs for directors.
8. Recommending the removal of directors.

Importance:

 Oversees board composition, including director selection and succession planning.

 Evaluates the skills, diversity, and independence of board members.
 Monitors board performance evaluations.

Contribution to Corporate Governance:

 Ensures diversity and competence in board membership.

 Reduces risk of entrenchment and conflict of interest in appointments.
 Enhances board effectiveness and strategic direction.

Reference: UK Corporate Governance Code (2018), Section 3: Composition, Succession and

Evaluation.

3. Remuneration (Compensation) Committee

The Remuneration Committee of the Board of Directors is responsible for formulating, evaluating and
approving remuneration including pension rights and any compensation payments of the executive
directors and company’s senior executive officers and key employees.

Remuneration committee is established to ensure that remuneration arrangements support the strategic
aims of a business and enable the recruitment, motivation and retention of senior executives while also
complying with the requirements of the regulation

Role of the Remuneration Committee

The role of the remuneration committee includes:

1. To determine and recommend to the board the framework and broad policy for the
remuneration (including benefits, pension arrangements and termination payments) of the
chairman, chief executive and executive directors of the company and the senior management;
2. To determine and recommend to the board the company’s policy on the duration of contracts
with executive directors, and notice periods and termination payments under such contracts;
3. Within the terms of the agreed framework and broad policy, to determine the total individual
remuneration package of each executive director, including, where appropriate, bonuses,
incentive payments, share plans and pension arrangements;
4. To advise on and determine all formulae for performance-related schemes operated by the
company, the methods for assessing whether performance conditions are met and the eligibility
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 of executive directors for annual bonuses and benefits under long term incentive schemes;
when appropriate, requesting the board to seek shareholder approval of all new long term
incentive schemes;
5. To consider and make recommendations in respect of any other terms of the service contracts
of the executives and any proposed changes to these contracts, and to review the company’s
standard form contract for executive directors from time to time;
6. To administer all aspects of any performance share plans operated by or to be established by
the company, including the selection of the eligible directors and employees of the company
and its subsidiary companies to whom awards should be granted; the timing of any grant of
awards; the numbers of conditional shares to be awarded; and the imposition of any objective
condition which must be complied with before any conditional shares may be vested.
7. To frame policies and systems and conditions for grant of Employees Stock Option Plan or
Scheme subject to the approval of the board and the shareholders. The responsibility of
administration and superintendence of such plans or schemes is generally entrusted to the
remuneration/compensation committee.

Composition:

 Comprised of independent non-executive directors.

 Should be chaired by a non-executive director.

Importance:

 Sets the remuneration policies for directors and senior executives.

 Aligns pay with performance and long-term shareholder value.
 Ensures transparency and fairness in executive compensation.

Contribution to Corporate Governance:

 Prevents excessive or unjustified pay packages.

 Links executive incentives with organizational goals.
 Boosts shareholder trust and reduces reputational risks.

Reference: Cadbury Report (1992); King IV Report on Corporate Governance for South Africa
(2016), Principle 14.

4. Risk Management Committee

The risk management committee is a standing sub-committee of the board of directors. It assists the
board in fulfilling its oversight responsibilities in relation to current and potential risk exposures of the
company including determination of risk appetite and tolerance.

Composition:

 Members drawn from both executive and non-executive directors.

 Should include individuals with expertise in risk oversight.
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Authority

1. The committee may establish sub-committees consisting of one or more members, other
directors and management to carry out such duties as the committee may delegate.
2. The risk committee has the authority to engage independent counsel and other advisers, as it
determines necessary, to carry out its duties. The committee has the power to approve the fees
and expenses of such advisors.
3. The chairperson of the committee reports regularly to the audit committee, as well as the full
board, on the committee’s activities, findings and recommendations, including the results of
the committee.
4. The committee may review and reassess the adequacy of its charter and recommend any
proposed changes to the board for approval.

5.5 Responsibilities and Functions of the Risk Management Committee

The committee’s responsibilities include:

1. Review risk management policy and plan developed by the management.

2. Monitor implementation of the risk policy and plan by the management.
3. Ensuring that an appropriate enterprise-wide risk management system is in place with adequate
and effective processes that include strategy, ethics, operations, reporting, compliance, IT and
sustainability.
4. Make recommendations to the board on risk indicators, levels of risk tolerance and appetite.
5. Ensure risk management assessments and minimization procedures are performed regularly by
the management.
6. Advise the board on the effectiveness of the system and process of risk management.
7. Review reporting on risk management that is to be included in the annual report.

Importance:

 Oversees the organization’s risk appetite, framework, and controls.

 Identifies and mitigates strategic, financial, and operational risks.
 Works closely with internal auditors and the audit committee.

Contribution to Corporate Governance:

 Strengthens organizational resilience and sustainability.

 Helps ensure proactive risk identification and mitigation.
 Fosters a culture of accountability and foresight.

Reference: COSO (2017), Enterprise Risk Management: Integrating with Strategy and Performance.

5. Corporate Social Responsibility (CSR) or Sustainability Committee

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Composition:

 A mix of executive and non-executive directors, including experts in ESG (Environmental,

Social, and Governance) issues.

Importance:

 Oversees the company’s environmental, social, and ethical obligations.

 Monitors sustainability strategies, stakeholder engagement, and social impact.
 Ensures compliance with ESG regulations and standards.

Contribution to Corporate Governance:

 Strengthens stakeholder trust and corporate reputation.

 Ensures alignment with sustainable development goals (SDGs).
 Enhances long-term corporate value and ethical behavior.

Reference: United Nations Global Compact (UNGC); IFC (2015), Corporate Governance
Progression Matrix for Listed Companies.

6. Finance Committee
The Finance Committee is tasked with overseeing the organization’s financial health. This includes
budgeting, financial planning, and monitoring the financial reporting processes

Composition:
 Comprised mainly of non-executive directors with expertise in finance, accounting, and
economics.
 Often includes the Chief Financial Officer (CFO) as a non-voting participant.
 Chaired by a financially literate board member (often not the board chair).
Importance:
 Oversees financial planning, budgeting, capital structure, and investment strategies.
 Reviews and recommends approval of financial policies, including borrowings, major
expenditures, and dividend policies.
 Monitors financial health, liquidity, and solvency of the organization.

Key Functions:
 Approves annual budgets and long-term financial plans.
 Oversees financial risk (e.g., credit, liquidity, interest rate risks).
 Provides oversight of financial reporting and compliance with accounting standards.
 Evaluates performance against financial targets and key performance indicators (KPIs).
Contribution to Corporate Governance:
 Promotes sound financial management and fiscal discipline.
 Enhances stakeholder trust through robust financial oversight.
 Enables informed capital allocation and investment decisions aligned with strategic goals.

Reference:
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 Institute of Directors (IoD, UK) (2017), Role of Board Committees in Corporate Governance.
  National Association of Corporate Directors (NACD, US), Finance Committee Handbook
(2014).
 OECD (2015), G20/OECD Principles of Corporate Governance, Principle V.D.

8. Executive Committee (ExCo)

The Executive Committee is often composed of the board's top officers, including the chair, vice-chair,
treasurer, and secretary. This committee acts on behalf of the full board when it is not in session,
handling urgent matters and making interim decisions

Composition:
 A subgroup of board members, typically including the board chairperson, CEO, and other
senior board members.
 May also include some senior executives as invitees (non-voting).
 Usually smaller in size (3–7 members) for agility and responsiveness.
Importance:
 Acts on behalf of the board between full board meetings, especially on urgent or time-
sensitive matters.
 Handles strategic oversight and ensures continuity in governance processes.
 May approve or supervise operational matters as delegated by the board.
Key Functions:
 Addresses emergency decisions when the full board is not available.
 Reviews performance reports, key contracts, and strategic initiatives.
 Prepares agenda and documentation for full board meetings.
 Oversees board succession planning, regulatory compliance, and stakeholder relations in
close coordination with the CEO.
Contribution to Corporate Governance:
 Enhances responsiveness and efficiency in decision-making.
 Ensures oversight continuity and strategic focus during interim periods.
 Allows full board to focus on high-level strategy, while ExCo handles delegated matters.
Reference:
 Institute of Directors Southern Africa (IoDSA), King IV Report on Corporate Governance
(2016), Principle 10.
 Business Roundtable (US), Principles of Corporate Governance (2016).
 Harvard Law School Forum on Corporate Governance (2021), "Role of the Executive
Committee in Modern Boards".

Conclusion

Board committees are the cornerstones of effective corporate governance. They enable boards to
handle specialized tasks efficiently, enhance transparency, and uphold accountability to
shareholders and stakeholders alike. Their success lies in independent membership, clear mandates,
and continuous evaluation.

Bibliography:
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1. OECD (2015). G20/OECD Principles of Corporate Governance.
[Link]
2. UK Financial Reporting Council (2018). UK Corporate Governance Code.
[Link]
3. King Committee (2016). King IV Report on Corporate Governance for South Africa.
4. COSO (2017). Enterprise Risk Management: Integrating with Strategy and Performance.
5. Taxmann's Auditing and Corporate Governance | [Link]. (Hons.) | CBCS
6. Cadbury Report (1992). Report of the Committee on the Financial Aspects of Corporate
Governance.
7. IFC (2015). Corporate Governance Progression Matrix for Listed Companies.
8. United Nations Global Compact. [Link]

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