BOARDROOM BEST PRACTICES

Best Practice For Board Committee Charters

In the UK, the role of the board committee has vastly expanded in recent years. With that increase in importance and scope, the need for board committees to work from clearly established charters that delineate their responsibilities has become critical.

The importance of well-defined responsibilities for board committees cannot be overemphasised, according to the UK Institute of Directors. “Each committee should have clearly defined terms of reference, reviewed annually by the board to ensure their relevance,” the Institute writes.

Best Practice For Board Committee Charters

The Board committees should adopt the same systematic planning and processes as the full Board.

  • First, the board committee charter is written, providing a detailed description of the roles and responsibilities of the committee, and the best composition plan for its members.
  • Then, a list of current issues of concern to the committee should be drawn up, and an agenda for their consideration should be established.

This leads to the establishment of a board meeting agenda, and arrangements for communications with management and the board as a whole. This is important, because, as a rule, board committees have little or no decision-making authority. But board committees do prepare the ground for decisions by the entire board, and the committee charter should structure this process.

In addition, committee charters serve as a reference for disputes between committee members and remind them of the corporate governance framework in which they must operate. The wording in the charter orients new committee members to the committee’s structure and its rules. The work that board committees perform acts as an extension of the board’s important work, providing a comprehensive and effective process for meeting board goals and objectives.

What is the size and scale of the challenge that companies face in building a balanced board?

Read our report: ‘Thoughts on the Challenges of Board Composition‘ from the ICSA and Diligent.

A Sample Board Committee Charter Template

Here is a sample board committee charter example:

Authority

  1. The Committee is a committee of the Board established under Section 5.1 of the Bylaws.

Membership

  1. The Board will appoint members of the Committee and a Chair, each to serve for one-year terms.
  2. The Board may fill vacancies on the Committee. The Board may remove a Committee member from the Committee at any time, with or without cause.

Operations

  1. The Committee will meet with such frequency as it may determine. The Chair of the Committee will preside over Committee meetings. A majority of Committee members will constitute a quorum. Committee approvals will require a vote of a majority of the Committee members present at a meeting at which a quorum is present.
  2. The Committee will report its activities to the Board on a regular basis and will keep minutes of its meetings.
  3. The Committee may invite any director, officer, employee, outside advisor or other individual who is not a Committee member to attend Committee meetings or meet with Committee members, but such persons will not have voting power and will not be held out as Committee members.
  4. [The _____will serve as the Committee’s staff liaison.]
  5. The Committee will review this charter periodically and recommend any proposed changes to the [Governance Committee][Board] for review.

Responsibilities

  1. Act with full authority of the Board between Board meetings, subject to statutory and Board-imposed limitations on committee action.
  2. Monitor the performance of the CEO, conduct his or her annual performance review, and make recommendations to the Board regarding the Executive Director’s performance goals for the subsequent year.
  3. Obtain and evaluate relevant compensation information and make a recommendation to the Board regarding the Executive Director’s and Treasurer’s compensation (including all benefits).
  4. Provide a sounding board to the Executive Director and serve as a source of ready advice on operating and personnel matters.

Diligent’s Nomination and Governance application helps Boards to identify strengths and weaknesses in Board composition

Developing a Board Committee Charter

It’s not difficult to develop a board committee charter, but there are a few steps boards should take to ensure that committees can get to work as soon as possible and have all the information they need to fulfill their duties as committee members.

Several people should be consulted before writing a board committee charter. Key governance personnel, the board chair, the CEO and the company secretary will all have valuable input for the charter. They will also be valuable in the pre-approval process, as they will help to document existing board policies and practices, analyse documentation and prepare materials for discussion.

When everything is in order, the same people meet to discuss the draft charter. When all of the documents are in order and the board is in agreement, the board votes for final approval of the committee charter. It’s also considered best practice for a committee of the board to review the charter annually.

Board Committee Charter Template

BOARD STANDING COMMITTEE CHARTER

(Source: Project Management Institute)

COMMITTEE NAME:

CHARTER EFFECTIVE DATE AND DURATION:

COMMITTEE PURPOSE:

DELIVERABLES:

(Products the committee is tasked to produce.)

Ongoing Deliverables:

  1. Review committee charter, including the roles and responsibilities section, at the first committee meeting.
  2. Review and maintain Meeting Calendar and Agenda Cycle.
  3. Review annual and board meeting survey data to influence agenda development.
  4. Compile committee meeting agendas.
  5. Address planning assumptions as input to subsequent year governance budget.
  6. Manage the Board Program of Work and Master Calendar/Agenda Cycle.
  7. Determine best means to communicate results of meetings to the board; provide regular dialogue with chairman and CEO, as well as with the rest of the board.
  8. Arrange for regular reporting.
  9. Arrange for regular evaluations of performance.

Diligent Governance Cloud Enables Good Governance

Boards need technology to support their efforts to structure good governance. Diligent Governance Cloud is the only integrated enterprise governance management solution that enables organisations to achieve best-in-class governance. It is an ecosystem of Modern Governance software tools that digitises the various activities and tasks for the board of directors.

As organisations grow more complex and regulations more stringent, the scope of governance responsibilities evolves. The Governance Cloud allows boards of directors to meet the demands in the boardroom and beyond with the ability to select the products they need that help them perform their best and work within their allotted budgets.

With so much at stake and so much to oversee, boards need the assistance of electronic board management systems to help them address the issue of improving governance practices. Diligent Boards and the integrated suite of governance tools in Governance Cloud is the perfect solution for boards working on their board governance frameworks. Having a fully integrated modern governance solution will aid board directors in developing governance frameworks that work for the benefit of the board, the managers, shareholders and stakeholders.

To ensure that all this activity remains confidential, Governance Cloud boasts high-level security in each of its programmes, including the board portal; Diligent Messenger, which is a tested means for calling and messaging; a programme to manage taking board meeting minutes for company secretaries; board evaluations; a Conflict of Interest module and entity management software programmes.

Good governance isn’t just one thing – so why buy software that only manages your board documents? At Diligent, we empower leading organisations around the world to turn good governance into a competitive advantage for their business. In the ever-changing landscape of the world, governance hasn’t kept up with the fast pace of business. Holding quarterly board meetings, relying on paper board books and not using secure communication tools for sensitive data have opened up numerous companies to risk.

With Diligent, boards can gain a competitive edge to improve governance by having the right information, analytics and insights to spot risks, act on opportunities and turn insights into action.

 WANT TO LEARN MORE ABOUT OUR BOARD SOFTWARE??

Learn more about the Diligent Boards board portal and discover how Diligent’s modern governance solution can empower today’s board members and company secretaries to achieve key outcomes. Request a demo today

Featured Blog