Professional Documents
Culture Documents
8 Board Committees-1
8 Board Committees-1
Safdar H. Tahir
1
Why Committees?
To get impartial and professional input
Reduce work load for directors
More detailed work
Specialization principle
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Common Committees
Audit Committee
Nominations Committee
Remunerations Committee
Executive Committee
Ad hoc Committees
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Audit Committee
Membership
All NEDs, preferably all INEDs
Chairman must be INED
Can take external help if needed
US law says at least one member of AC must
be a finance / accounting professional
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Responsibilities of AC
Oversight of financial reporting and
accounting policies/systems
Liaison with external and internal auditor
Ensuring regulatory compliance for
disclosures
Monitoring internal controls
Oversight of risk management processes
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Audit Committee Issues
Composition
All NEDs
Majority INEDs
Duration
Frequency of meetings
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Nature of Audit Committee
It is not an executive body.
It does not draw up accounting policy; its role
is only to review and oversee.
It does not perform internal or external audit.
It reports to the Board, not management.
It issues advice to management, not directives.
Committee can go to shareholders
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Best Practices for Audit Com
The prime tool of good corporate governance.
Managing its agenda:
annual, quarterly programs
Formal meetings with executives
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External Auditor &
Audit Committee
Negotiations with external auditor
Verifies suitability of the external auditor
Their resources, qualifications, independence, past record
Ensures independence
Linkages, non-audit work
Rotation, former employees of audit firm
Audit firm’s performance, ethics
Discusses report / management letter with external
auditor
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Situation in Pakistan on ACs
Law is being followed in words but often not
in spirit.
Often EDs are members of AC
In some cases, company chairman or CFO is
made chairman of AC
Since the whole board is subservient, no hope
for truly independent members of audit
committee.
10
Nominations Committee
Responsibilities
Formalization of process of finding good
directors & senior managers
Evaluation of directors’ individual
performance
Succession planning
Board size and structure
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Remunerations Committee
Drawing up Remuneration Policy for directors
and senior managers
Ensuring that directors are not paid any
additional fee or given consultancy
assignments etc.
Oversight of bonus computation for directors
Ensuring the proper disclosure is made in
respect of directors’ remuneration
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Basis of Remuneration
Fixed salary only
Bonus only
Combination
Balance between the components
Too high fixed salary as bad as too high bonus
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Fixed Salary
Promotes lethargy; status quo mentality
Dampens entrepreneurial initiative
Increases staff turnover
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Performance Based Pay
Bonuses
Cash
Free shares
Share options
Basis of computation
Base figure: sales, profit, market share, etc
Short term view
15
Balance in Components
What is the right mix?
Too high salary promotes lack of initiative
Too high bonus promotes:
short term view
Dishonesty; greed; fudging
16
Situation in Pakistan
Executive directors do not run the board,
controlling shareholder does.
Directors remuneration treated as employee
salary issue.
NEDs not paid any thing at all except
attendance fee.
Remuneration committees do not exist in
Pakistan
17
Executive Committee
Some decisions can only be taken by board but
board cannot meet too frequently; hence
executive committee with delegated powers.
Often has EDs and some INEDs as members
Meets frequently to dispose off routine
executive matters
Gives detailed report to board on more
important matters
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Executive Committee - 2
Reduces work for the board
Provides specialized input to the board
Provides extra layer of checking
Has more time to investigate and give more
detailed report
Serves as lower tier of a unitary board.
19
Ad hoc Committees
Created for a situation, purpose or time and
liquidated afterwards
Project Committee; Investigation Committee,
Negotiations Committee, etc.
Terms of reference decided by the board on
need basis.
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Thank you
Safdar H.Tahir
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