Corporate boards may set up any number of committees based on their needs. Some common choices for committees are listed below:
- Executive Committee.
- Audit Committee.
- Risk Management Committee.
- Stakeholders’ Relationship Committee.
- Compensation and Remuneration Committee.
- Nomination and Governance Committee.
- Corporate Social Responsibility Committee.
Many corporations prefer to incorporate the duties of the Compensation and Remuneration Committee and the Board Development Committee under the Board Development and Governance Committee.
The titles of the committees matter less than making sure that all of the duties and responsibilities that boards need are covered under some process.
Definition of the Board Development and Governance Committee
Due to the nature of the differences between various industries, the exact definitions of the Board Development and Governance Committee will vary to some degree. The American Bar Association gives us a good example of a quality definition of a Board Development and Governance Committee as follows:
“The mission of the Corporate Governance Committee is to promote and support effective corporate governance, domestically and internationally, for business and nonprofit enterprises by developing resources and providing thought leadership; creating networking opportunities; and facilitating a forum for the exchange of legal and practical information and insights on emerging governance and governance-related policy issues for the benefit of attorneys, including both outside and in-house counsel, and other governance professionals.”
The Role of the Board Development and Governance Committee
The main purpose of the Board Development and Governance Committee is to assist the board of directors in determining the board’s membership and measuring the quality of the board’s performance, wholly and individually. The purpose of this committee extends to making recommendations to the board about remuneration and board development needs, and maintaining best practices for corporate governance.
We can easily classify the duties and responsibilities of the Board Development and Governance Committee into duties as they relate to shareholders, the board, governance and board development.
Duties Related to Shareholders
Boards have a responsibility to ensure that shareholders can access accurate and timely financial reports.
By nature of their fiduciary duties, members of the Board Development and Governance Committee owe the shareholders the duties of care and loyalty. Regarding the duty of care, members of the committee must exercise good judgment when making recommendations to the board that are in the best interests of the shareholders. The standard they must use is to exercise the same care that anyone would expect from a reasonable and prudent person under the same circumstances.
Committee members must also abide by the duty of loyalty, which means that they will enforce the company’s conflict of interest policy and address any concerns over situations where board members are profiting personally from their positions on the board.
Duties Related to the Board
The vast majority of duties and responsibilities for the Board Development and Governance Committee pertain to nominating, appointing and setting remuneration for board directors.
The committee is responsible for coordinating the processes of recruiting, selecting, nominating and offering a slate of nominees to the board. These duties require ensuring compliance with the requirements and procedures for board elections.
The Board Development and Governance Committee is the proper party to disclose to the board and shareholders whether board nominees are independent. This committee takes responsibility for reviewing and assessing how well board directors followed through with their duties.
The committee also periodically reviews transactions by board members as a quality assurance measure and reports any discrepancies to the board.
The full board approves all remuneration agreements; however, the Board Development and Governance Committee makes proposals for individuals’ remuneration agreements to the board and makes recommendations for remuneration policies. The committee is also responsible for complying with the remuneration policy and making sure that it’s clear and that the board discloses the policy to the shareholders.
As part of the annual board evaluation process, the committee evaluates the results of the process and makes suggestions for how the board can improve its performance.
Another annual activity for the committee is to draft the annual report on the remuneration policy for the board.
Duties Related to Governance
As a means of checks and balances, the Board Development and Governance Committee oversees the Audit Committee and the annual audit. In addition, the committee ensures compliance with best practices for good corporate governance and makes recommendations for changes to the board.
As proposals for amendments to the bylaws pertain to governance, the committee presents updates, drafts of amendments, and appeals to the board for discussion and consideration.
Shareholder activism is becoming more commonplace. The committee receives any complaints by shareholders or other investors about compliance with policies or governance as a first step in resolving them.
Duties Related to Board Development
Regulatory authorities, such as the United Kingdom’s Corporate Governance Code, require regular review of the board’s effectiveness.
As its name indicates, the Board Development and Governance Committee is responsible for board director performance. Typically, committees begin this process by conducting an annual board member evaluation to use as a starting point for making further recommendations for board development.
The orientation process sets the initial platform for board member knowledge and understanding of good governance. The committee helps to foster the board’s knowledge by encouraging board members to participate regularly in conferences and workshops on governance and in other specific areas such as forming policies, strategic planning, supervising management and accountability practices.
Many Board Development Committees support the idea of taking board retreats. The idea behind board retreats is to get away from the daily pressures of work and life and focus on the board’s work. Board retreats foster board growth, provide time to prepare for the future, and foment change and rejuvenation.
Another issue that is somewhat difficult to define and assess is board dynamics. As board member terms expire and the board refreshes itself with new and more independent directors, board dynamics will surely change. Just as all other business and personal relationships take time, boards need time to acclimate to one another and to develop good working relationships.
Board Development and Governance Committees play a vital role in forming boards that are efficient and competent. Their duties are as important as they are numerous. Boards rely on committee members to help them comply with the rest of their oversight and planning duties.