Board Committees and

their Functions in
Corporate Governance
Introduction

• 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 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.
Contd…

• 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.
BOARD COMMITTEES

Board
Committees

Non-
Mandatory
Mandatory
Committees
Committees

Audit Remuneration Shareholder Investors Risk

Nomination Grievance Compliance Investment
Relation Management
Mandatory Committees

• These committees are required by law, regulations, or

listing agreements. Companies must establish them to
comply with governance standards.
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.
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.
Contd…

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.
Contd..

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.
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;
Contd…

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;
Contd…

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.
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.
Contd…

• 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’.
Contd…

• 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.
Contd…

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.
Contd…

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. Shareholder Grievance Committee

• 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.
4.2 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.
4.3 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.
4.4 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.
Contd..

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.
Non-Mandatory Committees

• These committees are not legally required but are

established at the discretion of the board to address
specific needs or enhance governance practices.
5. Compliance Committee

5.1 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.
5.2 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
5.3 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.
5.4 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 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
5.5 Responsibilities and Functions of the
Compliance Committee
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.
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
Contd…
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.
6. Risk Management Committee

• 6.1 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.
6.2 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.
6.3 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.
6.4 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.
6.5 Responsibilities and Functions
of the Risk Management Committee
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
7. Investment Committee

• 7.1 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.
7.2 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.
7.3 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.
7.4 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.
Contd…

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.
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.