Board committees
Boards usually have power to appoint committees for specific purposes, either on a temporary or a permanent basis. They can be very useful and flexible, including the opportunity to appoint non-directors with relevant skills or experience to serve on a committee.
The appointment of committees does not in any way depart from the principle of the board and all directors being equally responsible for the company’s affairs. Any disagreement between a committee’s members and the board should always be resolved by the full board.
In UK public companies the governance functions of audit, executive pay and the nomination of directors are referred to permanent board committees in which the majority, and sometimes all, of the members are independent non-executive directors. This committee structure reflects the assumptions underlying conventional corporate governance that it is necessary to protect the shareholders from the board itself controlling these areas.
The same concerns may or may not apply in a family enterprise, for example depending on whether or not the shareholders are on the board or the level of trust between non-working owners and the board. There may well be other good reasons for using committees for these functions, such as the sense of fairness and reduced anxiety of having a remuneration committee, possibly with outsiders, set executive remuneration for a group of working shareholders who do not do the same jobs or contribute equally to the business.
More generally Committees can perform a very useful control function in family enterprise governance; for example a governance committee to keep the effectiveness of the overall governance system under continual review. Wherever a committee is used the board should make the following very clear.
- The committee’s terms of reference.
- The powers delegated to the committee, for example, the power to review, report or make decisions on behalf of the board.
- Membership of the committee.
- The committee’s obligation to report to the board, the owners or the wider family and the circulation of committee papers and minutes.
