The committees should report back to the board on important issues they have considered and upon which they have taken action. They should meet in executive session on a regular basis with management personnel, if appropriate (because of issues under discussion), and also without such personnel being present. If the company receives a shareholder proposal, the committee most appropriate to consider the matter should review the proposal and the management's response to it.
Investors should determine whether the Board has established a committee of Independent Board Members, including those with recent and relevant experience of finance and accounting, to oversee the audit of the Company's financial reports.
The audit committee of the Board is established to provide independent oversight of the Company's financial reporting, non-financial corporate disclosure, and internal control systems. This function is essential for effective corporate governance and for seeing that responsibilities to Shareowners are fulfilled.
The committee represents the intersection of the board, management, independent auditors, and internal auditors, and it has sole authority to hire, supervise, and fire the corporation's independent auditors. When selecting auditors, the committee should:
When evaluating the audit committee, investors should determine whether:
Remuneration / Compensation Committee
Investors should determine whether the Company has a committee of Independent Board Members charged with setting executive remuneration/compensation.
Executive compensation practices provide a window into the effectiveness of the Board. Through the compensation committee, the Board should implement rational compensation practices that respond to the Company's equity policy, including conditional forms of compensation that motivate executives to achieve performance better than that of a peer group. With Shareowners' interest and fairness in mind, the committee should ensure that executive compensation packages are commensurate with the level of responsibilities of the executive and appropriate in light of the Company's performance. All policies should be disclosed to shareholders upon adoption by the full board.
The committee should have only Independent Board Members. Committees lacking independence could award excessive compensation due to management pressures and/or provide incentives for actions that boost short-term share prices at the expense of long-term profitability and value.
When evaluating this committee, investors should determine whether:
Investors should determine if the Company has a nomination committee of Independent Board Members that is responsible for recruiting Board Members.
In most corporations, currently, nominations of Board Members and executive officers of the Company are made by Board Members, most often at the recommendation of, or in consultation with, the management of the company. In such circumstances, the criteria for selection of nominees may favor management's best interests at the expense of the interests of Shareowners. Consequently, corporate governance best practices require that nominees to the Board be selected by a nomination committee comprised only of Independent Board Members.
The committee is responsible for:
Investors should review the committee's practices of recruiting Board Members who act in the best interests of Shareowners. They should also review:
Investors should determine whether the Board has other committees that are responsible for overseeing management's activities in certain areas, such as corporate governance, mergers and acquisitions, legal matters, or risk management.
I. the members
I. have authority over the audit of the entire corporate group, including foreign subsidiaries and affiliated companies.
III. The external auditors don't prepare the financial statements.
I. All members of the audit committee must be Independent Board Members.
I: "... has established a committee of Independent Board Members, including..."
Although II is not required, these practices are highly recommended.
III: Note that the non-audit consulting services are usually approved by the management, not the Board.
I. The nominations committee is responsible for recruiting top executives.
I: The nominations committee is responsible for recruiting new Board Members.
A. includes members of executive management.
The compensation committee should be independent from executive management.
I. audit committee
A. I, II and III
Investors should determine whether the Board has established these committees of Independent Board Members (although some jurisdictions permit non-Independent members to serve on these committees).