Structure Of Board Committees

To facilitate effective governance and ensure that diverse aspects of the company are adequately addressed, many boards establish specialized committees.  

These committees are tasked with specific responsibilities, allowing for in-depth focus and expertise in key areas. Understanding the composition and structure of these committees is crucial in comprehending the dynamics of corporate governance. 

Board committees are typically comprised of members of the board of directors, chosen based on their expertise, experience, and interest in specific areas of governance. 

The composition and number of Committees may vary depending on the organization’s size, industry, and specific needs.  For instance:  

• For State Corporations:  Mwongozo, the Code of Governance for State Corporations prescribes that the Board of the State Corporation  should establish not more than four committees of the Board provided that the Board shall be at liberty to establish such ad-hoc committees as required to deal with any matters requiring focused attention. 
  Further, the Code prescribes that the State Corporation must establish an Audit Committee, and a maximum of three other committees to discharge the following functions: Governance, Technical matters, Risk,  Strategy,  Compliance , Human Resources and Finance.  

• For Listed Companies  : The CMA Code of Corporate Governance Practices for Issuers of Securities to the Public 2015  provides that Board shall establish committees to cover broad functions of the company such as: audit, board nominations, risk management, remuneration, finance, investment and governance. The Code explicitly provides that the audit committee shall comprise of  at least three independent and non-executive directors and that the chairperson of the nomination committee shall be an independent director.  
• For Banks in Kenya: The Prudential Guidelines for Institutions Licensed under the Banking Act mandate the establishment of specialized committees by the Board. Nevertheless, the Board retains responsibility and accountability. The number and nature of committees depends on many factors, including the size of the Bank and its board, the nature of the business areas of the Bank, and its risk profile. However, the Audit Committee, Risk Management Committee and Credit Committee are mandatory.  
• Regulated Sacco Societies in Kenya: The SASRA Guidance Notes on Corporate Governance stipulate that DT-SACCOs shall constitute Committees of the Board consisting of Credit Committee, Audit and Risk Committee and any other two Committees as maybe defined in their By-Laws and NWDT-SACCOs shall constitute Committees of the Board consisting of Credit Committee and any other two Committees.  

While the structure of board committees can differ based on various factors including the applicable regulatory framework as highlighted, there are several common types of board committees. These include:  

Audit Committee: This committee is responsible for overseeing the financial reporting process, internal controls, audit processes, and compliance with legal and regulatory requirements. Members of the audit committee often possess financial expertise, such as accounting or auditing backgrounds. 

Growth, Strategy and Development Committee: This committee focuses on long-term strategic planning and development. It assesses market trends, competitive landscape, and opportunities for growth, providing guidance to the board on strategic direction and initiatives. 

Risk Management Committee: The risk management committee identifies, assesses, and monitors various risks faced by the organization, including financial, operational, strategic, and reputational risks.  

Nomination and Governance Committee: It is also referred to as the nominating committee in some organisations. This Committee is responsible for recommending individuals for election to the board of directors and overseeing corporate governance matters. The committee evaluates the composition of the board, assesses director performance, and develops governance policies. 

Credit Committee: It is tasked with evaluating the creditworthiness of potential borrowers, reviewing and approving/rejecting credit applications, ensuring they align with the organization’s credit policies and risk tolerance. The committee also contributes to the development and revision of credit policies and procedures to maintain prudent lending practices and compliance with regulatory requirements. 

Compensation Committee: The Committee oversees executive compensation and ensures that compensation practices align with the company’s goals, performance, and industry standards. Members of the compensation committee often have backgrounds in human resources, finance, or executive management. 

Conclusion: 

Board committees play a critical role in enhancing corporate governance and facilitating effective decision-making. By understanding the composition and structure of these committees, stakeholders gain insight into functioning of governance mechanisms and delineation of responsibilities for long-term organizational success. At Bellmac Consulting LLP, we are ready to assist you with developing your Board Charter, structuring your Board Committees and drafting Terms of Reference for your Committees.