A company’s constitution may allow its directors to delegate responsibility for certain decisions to board committees. Committees often have directors as members, although a company constitution can allow non-directors to serve on committees.
Committees can typically include the following:
• a nomination committee, responsible for director appointments;
• a remuneration committee, responsible for setting directors’ compensation and, increasingly, for setting employee remuneration;
• an audit committee, responsible for internal audits and reporting; and
• a risk committee, responsible for internal risk-reporting functions of the audit committee, as well as other compliance responsibilities.
UK company law, however, does not require a board to establish committees, nor does it set out the membership composition or remit of committees. Companies whose securities are traded on a UK regulated market are required to establish an audit committee, and the UK Corporate Governance Code also recommends that listed companies establish a nomination and a remuneration committee. The Code also sets out specific independence requirements for members of committees.
Delegating responsibilities to a committee does not absolve directors of their own responsibilities. Company directors remain chiefly liable for running a company and they need to act carefully and reasonably when delegating duties to a committee.