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BP&E Global supports Boards to enhance their structures and robustness of their governance, including committees.
In particular, with regard to committees we:
- Advise on appropriate Committees to your business
- Assist in defining Terms of Reference
- Help in determining appropriate membership
- Review structures in place for effectiveness
- Evaluate Committees as a standalone or as part of a full Board evaluation
The FRC UK Corporate Governance Code and UK regulation are clear on what Committees they expect a Board to run. Both are agreed on an Audit Committee, a Remuneration Committee and a Nominations Committee. Both are clear on the issue of Risk and are increasingly expecting all but the smaller firms to have a separate Risk Committee. Where risk is part of the Audit Committee's remit the Terms of Reference must specifically include risk. Each iteration of the UK Corporate Governance Code gives further guidance on what is expected of the committees below.
For unlisted firms, regulations do make clear that they expect firms to adopt appropriate Committee structures but will want to understand why the Board has chosen its approach.
A brief summary of the purpose and constituency of the key Board Committees is set out below
Firms are required to have an Audit Committee or explain their reason for not doing so - and it would need to be a very good rationale! The same would apply for all but the smallest regulated firms.
The Audit Committee is seen as key in providing the Board with assurance that financial and operational controls are effective and to oversee the external auditors and internal audit function. Members of this Board committee should comprise only independent directors and at least one must have significant recent and relevant experience.
There is increasing pressure on Boards to conduct open, transparent and rigorous recruitment and appointment procedures for new Board members. This work falls to a Nominations Committee which consist of a majority of independent directors. Where appointments are very infrequent a Nominations Committee can be formed for a specific recruitment event.
Every company is required to consider certain aspects of remuneration, particularly in relation to risk, directors and senior management remuneration, appropriateness of short-term and long-term incentives and rewards, and use of external consultants. Committee membership should be wholly sourced from independent directors. International policy is gradually being aligned and a Remuneration Code was introduced in January 2012 which gives the regulator power to void contracts that breach this Code. The Code does not strictly apply to all firms but we strongly recommend that the Board reviews its provisions and ensures that it can explain why it may diverge from those standards. Then regulators will expect regulated firms to have tight controls in this area.
This is a moving feast but the trend is towards all financial institutions separating their Risk Committee from the Audit committee and with a different remit and membership.
Most listed companies have appointed a Chief Risk Officer who serves no individual business unit and has an enterprise-wide remit. The Risk Committee should also be able to draw on appropriate external resources to challenge its analysis and assessment. Annual reports should contain a report by the Risk which contains information regarding number and frequency of meetings, membership, and details of any external advice taken.
Contact us now to discuss your requirements in confidence...
BP&E Global - because Board Performance Matters