Overview of Board Committees and their Functions in Corporate Governance

Table of Contents

1. Audit Committee
2. Remuneration Committee
3. Nomination Committee
4. Compliance Committee
5. Risk Management Committee
6. Investment Committee
7. Shareholders’ Grievance Committee
8. Investor Relations Committee

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In recent years much emphasis has been placed on functioning of boards through board sub-committees to facilitate effective monitoring of companies by focusing on corporate issues in detail. In some instances committees are constituted by the boards of companies on permanent basis by assigning tasks of continuous nature like development and review of production, finance or other policies, board evaluation, succession planning, arranging orientation and training programmes etc. These committees which are more often standing are empowered to make relevant decisions but are required to report to the board of directors. In other cases committee are formed as ad hoc ones for investigation of particular issue(s), or forming recommendations on a specified matter and presenting these to the board for further action.

1. Audit Committee

Audit Committee is the most important of the board sub-committees. It acts as an interface between the external auditors and the board. To lessen the dominance of the senior executives in the audit process, the committee is designed to comprise entirely or predominantly of independent non-executive directors. Audit committee meets 3-4 times a year to discuss the details of the audit and audit related matters including auditor’s fees and re-appointment of the auditors.

1.1 Composition of Audit Committee

1. The audit committee shall have minimum three directors as members. Two-thirds of the members of audit committee shall be independent directors.
2. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.
3. The Chairman of the Audit Committee shall be an independent director.
4. The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholders queries.
5. The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executive of the company. The finance director, head of internal audit and a representative of the statutory auditor may be present as invitees for the meetings of the audit committee.
6. The Company Secretary shall act as the secretary to the committee.

1.2 Meeting of Audit Committee

The audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings. The quorum shall be either two members or one-third of the members of the audit committee whichever is greater, but there should be a minimum of two independent members present.

1.3 Powers of Audit Committee

The audit committee shall have powers, which should include the following:

1. To investigate any activity within its terms of reference.
2. To seek information from any employee.
3. To obtain outside legal or other professional advice.
4. To secure attendance of outsiders with relevant expertise, if it considers necessary.

1.4 Role of Audit Committee

The role of the audit committee shall include the following:

1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.
2. Recommending to the Board, the appointment, re-appointment and, if required, replacement or removal of the statutory auditor and the fixation of audit fees.
3. Approval of payment to statutory auditors for rendering any other services.
4. Reviewing, with the management, the quarterly financial statements and the annual financial statements before submission to the board for approval.
5. Reviewing, with the management, performance of statutory and internal auditors, and adequacy of the internal control systems.
6. Reviewing the adequacy of internal audit function.
7. Discussion with internal auditors any significant findings and follow up thereon.
8. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.
9. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.
10. To review the functioning of the Whistle Blower mechanism, in case the same is existing.
11. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.

1.5 Review of Information by Audit Committee

The Audit Committee shall mandatorily review the following information:

1. Management discussion and analysis of financial condition and results of operations;
2. Statement of significant related party transactions submitted by management;
3. Management letters/letters of internal control weaknesses issued by the statutory auditors;
4. Internal audit reports relating to internal control weaknesses; and
5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee.

2. Remuneration Committee

The Remuneration Committee of the Board of Directors is responsible for formulating, evaluating and approving remuneration including pension rights and any compensation payments of the executive directors and company’s senior executive officers and key employees. Remuneration committee is established to ensure that remuneration arrangements support the strategic aims of a business and enable the recruitment, motivation and retention of senior executives while also complying with the requirements of the regulation.

2.1 Composition

To avoid conflicts of interest, the remuneration committee, which would determine the remuneration packages of the executive directors may comprise of at least three directors, all of whom should be non-executive directors, the chairman of committee being an independent director. All the members of the remuneration committee could be present at the meeting. The chairman of the remuneration committee should be present at the Annual General Meeting to answer the shareholders queries.

2.2 Meetings

The frequency with which the remuneration committee needs to meet varies from company to company and may change from time to time. It however, must meet close to the year end to review the directors’ remuneration and as often as circumstances warrant.

2.3 Role of the Remuneration Committee

The role of the remuneration committee includes:

1. to determine and recommend to the board the framework and broad policy for the remuneration (including benefits, pension arrangements and termination payments) of the chairman, chief executive and executive directors of the company and the senior management;
2. to determine and recommend to the board the company’s policy on the duration of contracts with executive directors, and notice periods and termination payments under such contracts;
3. within the terms of the agreed framework and broad policy, to determine the total individual remuneration package of each executive director, including, where appropriate, bonuses, incentive payments, share plans and pension arrangements;
4. to advise on and determine all formulae for performance-related schemes operated by the company, the methods for assessing whether performance conditions are met and the eligibility of executive directors for annual bonuses and benefits under long term incentive schemes; when appropriate, requesting the board to seek shareholder approval of all new long term incentive schemes;
5. to consider and make recommendations in respect of any other terms of the service contracts of the executives and any proposed changes to these contracts, and to review the company’s standard form contract for executive directors from time to time;
6. to administer all aspects of any performance share plans operated by or to be established by the company, including the selection of the eligible directors and employees of the company and its subsidiary companies to whom awards should be granted; the timing of any grant of awards; the numbers of conditional shares to be awarded; and the imposition of any objective condition which must be complied with before any conditional shares may be vested.
7. to frame policies and systems and conditions for grant of Employees Stock Option Plan or Scheme subject to the approval of the board and the shareholders. The responsibility of administration and superintendence of such plans or schemes is generally entrusted to the remuneration/compensation committee.

Exclusions

The domain of the remuneration committee does not encompass decisions to employ or dismiss executives. The remuneration committee does not have responsibilities for nominations to the board. The remuneration of non-executive directors is a matter for the executive members of the Board (subject to the Articles of Association of the Company). The Board may, however, delegate this responsibility to a smaller sub-committee of executive directors, which may include the chief executive officer. No director or manager shall be involved in any decisions as to their own remuneration.

3. Nomination Committee

The directors of a company are appointed/re-appointed by the shareholders of a company at the annual general meetings of the company. The appointment or reappointment, in practice takes place on the recommendations of the board of directors. In the absence of any criteria or policy for identifying and selecting candidates for directorship, the directors would be appointed on the basis of personal connections of the more dominating director(s) on the board. In such circumstances the board would become a body of close associates functioning either as a cozy club or a dormant body subservient to the lobby of powerful directors.

Good corporate governance hinges on fairness and transparency. There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. It is imperative that the job of setting standards for nomination of directors, screening the probable candidates, and reviewing their core competencies be assigned by the board to a sub-committee composed wholly or mainly of independent directors. Such a committee called ‘nomination committee’ is quite prevalent in many companies across the world. It is regarded as the ‘best corporate governance practice’.

The nomination committee is responsible for formulating policy and making recommendations to the board of directors on nominations, appointment of directors and board succession. The committee develops selection procedures for candidates, and considers different criteria of selection including appropriate professional knowledge and industry experience. The committee also reviews the size, structure and composition of the board and assesses the independence of independent non-executive directors. The committee is provided with sufficient resources enabling it to discharge its duties.

3.1 Composition of Nomination Committee

The nomination committee, generally comprise of two to three members all being non-executive directors with a majority of independent directors. The nomination committee appoints its chairperson. The chairperson of the nomination committee is desired to be the chairperson of the board (if independent) or a senior independent director. The nomination committee may invite anyone it considers appropriate to attend nomination committee meetings. The nomination committee may seek professional advice from employees of the company and from appropriate external advisers.

3.2 Meetings of Nomination Committee

The nomination committee meets as often as it considers necessary. The nomination committee submits its report and recommendations to the board. The chairman of the nomination committee is required to attend the AGM to respond to any questions which may be raised by shareholders on matters within the committee’s area of responsibility.

3.3 Role of Nomination Committee

The role of nomination committee includes:

1. Identifying and recommending to the board, nominees for membership of the board.
2. Identifying and assessing the necessary and desirable competencies and characteristics for board membership and regularly assessing the extent to which those competencies and characteristics are represented on the board.
3. Ensuring succession plans are in place to maintain an appropriate balance of skills on the board and reviewing those plans.
4. Establishing processes and annually evaluating the performance of the board, both collectively and individually.
5. Regularly reviewing the time required from non-executive directors to perform their functions and assessing whether they are satisfying those time requirements.
6. Establishing induction programs for new directors.
7. Developing continuing education programs for directors.
8. Recommending the removal of directors.
9. Assist the board in identifying suitable candidates for the CEO’s position and his or her first line who could be suitable for replacing the CEO.
10. Annually reviewing the performance of the chief executive officer.

Nomination committee should desist from encroaching upon the domain of other board committees particularly the remuneration committee. The nomination committee should refer any matter relating to remuneration policies and practices to the remuneration committee. It is desirable that both nomination and remuneration committees work closely in exercising their powers and performing their responsibilities assigned by the board of directors. Some companies have the practice of combining both the committees and call it ‘nomination and remuneration committee’.

4. Compliance Committee

4.1 Purpose

The Compliance Committee is a standing sub-committee of the board of directors of a company which assists the board in:

1. Fulfilling its statutory responsibilities with respect to the oversight of compliance with the laws and regulations applicable to the company;
2. Monitoring the company’s compliance with the corporate policies, codes and practices.

The committee reports its activities to the board on regular basis and makes such recommendations to the board as it deems necessary and appropriate.

4.2 Composition

The membership of the committee is determined by the board of directors and it generally consists of three (3) or more directors who are not members of management. Where the board has constituted nomination committee, the board considers recommendation of the nomination committee while making appointment to the compliance committee. The board also appoints a committee chairperson. The board may remove any member from the committee at any time.

4.3 Meetings

The Committee holds such meetings from time to time as it determines. The committee also meets periodically with the management, Chief Compliance Officer, Company Secretary and company’s legal counsel. The meetings are held to review the compliance policies, procedures and specific issues regarding compliance.

4.4 Authority

1. To the extent permitted by policies of the company, the committee may establish sub-committees consisting of one or more members, other directors and management to carry out such duties as the committee may delegate.
2. The committee has the authority to retain such outside advisors, including legal counsel or other experts, as it deems appropriate, and to approve the fees and expenses of such advisors.
3. The chairperson of the committee reports regularly to the audit committee, as well as he full board, on the committee’s activities, findings and recommendations, including the results of the committee.
4. The committee may review and reassess the adequacy of its charter and recommend any proposed changes to the Board for approval.

4.5 Responsibilities and Functions of the Compliance Committee

The responsibilities of the Compliance Committee include the following:

1. Compliance with the Laws and Regulations: Audit committee has the responsibilities of oversight over matters of financial compliance (including auditing, financial reporting, and disclosures to investors), the compliance committee has oversight responsibility for matters of non-financial compliance with the laws, regulations and other statutory requirements applicable to the company. The compliance committee reviews compliance programs, policies and procedures; significant legal or regulatory compliance exposure; and material reports or inquiries from government or regulatory agencies.
2. Compliance with the Policies, Procedures and Codes of the Company: The committee reviews the company’s compliance efforts with respect to relevant company policies and the company’s code of conduct with respect to insider trading, related party transactions, and conflicts of interest other relevant laws and regulations. The committee also monitors company’s efforts to implement legal obligations arising from settlement agreements and other similar documents or orders, and reviews and issues reports required by settlement agreements or other relevant legal obligations.
3. Investigations: The committee oversees the investigation of, and may also request the investigation of, any significant instances of non-compliance with laws or the company’s compliance programs, policies or procedures, or potential compliance violations that are reported to the committee
4. Compliance Risk Assessment Plan: The committee regularly reviews the company’s compliance risk assessment plan.
5. Review of Complaints: The committee oversees the review of complaints received from internal and external sources, including the published reports.
6. Other Duties: The committee also carries out such other duties as may be delegated to it by the board from time to time.

5. Risk Management Committee

5.1 Purpose

The risk management committee is a standing sub-committee of the board of directors. It assists the board in fulfilling its oversight responsibilities in relation to current and potential risk exposures of the company including determination of risk appetite and tolerance.

5.2 Composition

The committee comprises a minimum of three independent non-executive directors, as well as the chief executive and financial director. Where the board has constituted nomination committee, the board considers recommendation of the nomination committee while making appointment to the risk committee. Members of the committee are individuals with risk management skills and experience. The board also appoints a committee chairperson. The chair of the board may not serve as chair of this committee.

The risk committee should have appropriate overlap with the audit committee, in particular involving the participation by the chairman of the audit committee.

5.3 Meetings

The frequency with which the committee needs to meet varies from company to company and may change from time to time. As a general rule, most risk committees would be expected to meet at least quarterly. There should be as many meetings as the risk committee’s role and responsibilities require.

The committee may meet in joint session with the Audit committee of the Board from time to time to discuss areas of common interest and significant matters.

The committee also meets periodically with the management, Chief Risk Officer, Chief Compliance Officer, Company Secretary and company’s legal counsel. The committee may request any officer or employee of the company or any special counsel or advisor, to attend a meeting of the committee.

5.4 Authority

1. The committee may establish sub-committees consisting of one or more members, other directors and management to carry out such duties as the committee may delegate.
2. The risk committee has the authority to engage independent counsel and other advisers, as it determines necessary, to carry out its duties. The committee has the power to approve the fees and expenses of such advisors.
3. The chairperson of the committee reports regularly to the audit committee, as well as the full board, on the committee’s activities, findings and recommendations, including the results of the committee.
4. The committee may review and reassess the adequacy of its charter and recommend any proposed changes to the board for approval.

5.5 Responsibilities and Functions of the Risk Management Committee

The committee’s responsibilities include:

1. Review risk management policy and plan developed by the management.
2. Monitor implementation of the risk policy and plan by the management.
3. Ensuring that an appropriate enterprise-wide risk management system is in place with adequate and effective processes that include strategy, ethics, operations, reporting, compliance, IT and sustainability.
4. Make recommendations to the board on risk indicators, levels of risk tolerance and appetite.
5. Ensure risk management assessments and minimization procedures are performed regularly by the management.
6. Advise the board on the effectiveness of the system and process of risk management.
7. Review reporting on risk management that is to be included in the annual report.

6. Investment Committee

6.1 Purpose

Investment committee is a sub-committee of the board. Although not mandated by the legal requirement, the investment committee is an important committee to assist the board of directors in formulating investment policies, strategies, transactions and reviewing performance of the company’s investments and capital expenditure.

6.2 Composition

The Investment committee generally consists of three or more directors, who are appointed by the board. One of the directors is appointed as chairman. The company secretary acts as Secretary to the Committee.

6.3 Operations

The chairman of the committee calls the committee meeting as and when required. Minutes of every meeting is placed for information and approval of the board in the board meeting.

6.4 Powers and Authority

The Investment Committee is responsible to:

1. Set investment policies (subject to approval of the board) and guidelines, including policies and guidelines regarding asset classes, asset allocation ranges, and prohibited investments.
2. Define permissible assets classes for investment and tolerance for risk.
3. Approve the allocation of strategic assets.
4. Approve individual investments and related applications.
5. Complete due diligence from legal and financial angle for the investments.
6. Provide delegation of authority to the management to execute individual investment transactions, signing of memorandum of understanding/agreements/deeds for the investments.
7. Approve amendments to investment plans.
8. Evaluate investment performance based on a comparison of actual returns with the return objective, and with such other benchmarks as the Board or Committee may from time to time select. The evaluation takes into account compliance with investment policies and guidelines and risk levels.
9. Review the investment policies, strategies and programs of the Company.

7. Shareholders’ Grievance Committee

7.1 Purpose

The Shareholders’ Grievance Committee is a standing sub-committee of the board of directors of a company which looks into redressal of shareholders’ complaints related to transfer of shares, non-receipt of Balance Sheet, non-receipt of declared dividend, etc. The committee oversees performance of the Registrars and Transfer Agents of the company.

7.2 Composition

The Shareholders’ Grievance Committee consists of three or more directors. The chairman of the committee is an independent non-executive director. The company secretary acts as secretary to this committee.

7.3 Meetings

The Committee holds such meetings from time to time as it determines. The committee also meets periodically with the Registrars and Transfer Agents of the company to review its services in the context of complaints of the shareholders.

7.4 Responsibilities and Functions of the Shareholders’ Grievance Committee

The responsibilities of the Shareholders’ Grievance Committee include the following:

1. Review the mechanism adopted for redressal of investors and depositors complaints.
2. Review the complaints and the status of investors’ complaints.
3. Oversees the services of the Registrars and Transfer Agents of the Company.
4. Review the initiatives taken to reduce quantum of unclaimed dividends.
5. Review the status of the litigation(s) filed by/against the shareholders of the company.
6. Review the impact of enactments/amendments issued by the MCA/SEBI and other regulatory authorities on matters concerning the investors in general.
7. Review the status of claims received for unclaimed shares.
8. Review the matters relating to uploading of data relating to unclaimed deposits/dividends to the website of Investor Education & Protection Fund in terms of the IEPF.
9. Such other matters as per the directions of the board of directors of the company and/or as required under Clause 49 of the Listing Agreement.

8. Investor Relations Committee

8.1 Purpose

The purpose of the Investor Relations Committee of the Board of Directors is to monitor and assist the board with the strategic direction and overall status of the company’s investor relations programs and associated activities.

8.2 Membership

The committee comprises of not less than two (2) members, each of whom is a member of the board. Board of directors of the company decides the exact number of members. In consultation with the board, the committee designates one member of the committee as its chairperson. The committee may also form and delegate authority to sub-committees as the committee deems necessary or appropriate.

8.3 Responsibilities and Functions of Investor Relation Committee

The duties and responsibilities of the committee include the following:

1. Monitor and assist management with the strategic direction and overall status of the company’s investor relations and associated activities.
2. Review and approval of engagement of third party investor relations.
3. Review of investor presentations and press releases.
4. Conduct regular informal meetings with senior management of the company to discuss and strategize on the company’s investor relations.
5. Provide oversight and guidance regarding all material investor relations issues.