ICSA Guidance on Board Committees

The Combined Code on Corporate Governance (the "Combined Code") stipulates that certain matters should be delegated to board committees, principally nomination, remuneration and audit committees.

The Combined Code has recently been revised and in order to reflect the revisions to the principles and provisions concerning board committees, the Institute of Chartered Secretaries and Administrators ("ICSA") has issued new model terms of reference for each of the three committees stated opposite. The following are some of the new terms:

An appointment to each of the committees can be for a period of up to three years, and provided that the director remains independent, the appointment may be extended by two additional three year periods.

The remuneration and nomination committees should meet at least twice a year and the audit committee should meet at least three times a year at appropriate times in the reporting and audit cycle.

Remuneration Committee

This committee’s duties and responsibilities include:

• reviewing the ongoing appropriateness and relevance of the remuneration policy;

• ensuring that contractual terms on termination and any payments made are fair to both the individual and the company;

• approving the design of, and determining the targets for, any performance related pay schemes and reviewing the design of all share incentive plans for approval by the board and shareholders;

• exclusive responsibility for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the committee; and

• producing an annual report on the company’s policies and practices relating to remuneration for inclusion in the company’s annual report.

This committee’s duties and responsibilities include:

• Regularly reviewing the structure, size and composition requirements of the board compared to its current position;

• Responsibility for identifying and nominating, for the approval of the board, candidates to fill board vacancies as and when they arise;

• Prior to appointments being made by the board, evaluating the balance of skills, knowledge and experience on the board and establishing job descriptions for any new positions;

• Keeping up-to-date and fully informed about business issues and commercial changes affecting the company and its market; and

• Producing a statement for inclusion in the annual report about its activities and the processes used to make appointments.

This committee’s duties and responsibilities include:

• Monitoring the integrity of the financial statements of the company, including its annual and interim reports;

• Keeping under review the effectiveness of the company’s internal controls and risk management systems;

• Ensuring that proportionate and independent investigations can be undertaken should its employees raise concerns in relation to financial reporting;

• Considering and making recommendations to the board in relation to the appointment, reappointment and removal of the company’s external auditors; and

• Compiling a report to shareholders on its activities to be included in the company’s annual report.

The full set of model terms can be obtained from www.icsa.org.uk, in the Guidance Notes’ section.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.