— Governance Matters (@GovernanceMatt) August 4, 2016
We’re all familiar with the analogy that a camel is a horse designed by a committee.
It’s a rather unflattering comment on the ineffectiveness that can arise when too many people with conflicting opinions need to arrive at a decision that, by definition, will reek of compromise.
Which is why the composition of committees – and, indeed, their close relations, task forces – is so important to a board fulfilling its primary governance function of wise and considered decision-making. The board needs the help, input and assistance from various committees to allow it to do just that.
That’s because appointed committees – we’ll chat about task forces in Part II of this blog as they’re an altogether different animal although also there to help the board and management meet its responsibilities – can look at issues and areas of attention in far greater depth and with far sharper focus than the board has time to do.
So what precisely is a committee and, more importantly, its terms of reference?
— Governance Matters (@GovernanceMatt) August 3, 2016
The committee’s job is to consider the matter, arrive at a decision as to what it believes should be done and then recommend to the board the decision it believes the full board should make. The committee doesn’t make decisions; rather, it gathers information, observes, arrives at viewpoints and recommends.
There are essentially two types of committees – the classic “governance” committees versus “operational” committees…Then, there can also be task forces of the Board and of operations.
Looking at more complex organisations, the types of governance committees a board will create are typically these – or in some cases, a combination of them:
An Audit Committee to deal with the external auditors, manage the audit and help with the preparation of the financial accounts;
A Risk Committee to consider the higher level risks confronting the organisation, determine the risks the board should be monitoring and, most importantly, recommend plans to address them and actions to manage them;
A Nominations Committee that recommends who should be nominated to fill a casual vacancy on the board, until such time as elections can be held and a permanent member can be voted to the position; and
A Remuneration Committee tasked with suggesting an appropriate salary package for the CEO, monitoring performance and determining how success will be measured.
These governance committees all have one major ingredient in common – and that’s that they are permanent, as opposed to a task force that is set up to attend to a specific matter that usually has a start and end date…and once the end date is reached, it disbands.
Which, I guess, provides us with a rather neat segue to part two of this blog, which we’ll pick up on next week…