Author: indiafreenotes

Committees are generally formed to perform some expertise work. -Members of the committee are expected to have expertise in the specified field.  Committees are usually formed as a means of improving board effectiveness and efficiency, in areas where more focused, specialized and technical discussions are required.

Board Committees: A board committee is a small working group identified by the board, consisting of board members, for the purpose of supporting the board’s work.

The board has specific fiduciary duties of care, loyalty, and obedience to the law. As a group they are in charge of:

• Establishing a clear organizational mission
• Forming the strategic plan to accomplish the mission
• Overseeing and evaluating the plan’s success
• Providing general support to the executive director and the president
• Functioning as an incubator and feedback mechanism for board, committee, and member proposals
• Establishing and maintaining a board culture that is open, inclusive and promotes generative thinking
• Hiring a competent executive director
• Reviewing and updating the executive director succession plan
• Providing adequate supervision to the executive director.

Type of Committee and Area of the Program

The committee charter should state whether this is a standing or ad hoc committee. If you are creating a standing committee, it should also indicate the areas of focus for the committee.

Membership

The committee charter should include information about the election and rotation requirements for board members. It should also state whether a quorum is required for a meeting.

This section should describe the process for selecting members on the committee. It should include information on how to nominate a member and whether it’s mandatory to select an even number of members.

Chairmanship

The committee charter should specify the duties of the chair. It should also state whether there are any special requirements for serving as the chairperson.

This section of the committee charter should include information about the Chairman, 1st Vice-Chair, and 2nd Vice-Chair, as well as a provision for how these positions are elected.

Authority

This section of the committee charter should outline the authority and scope of the committee as well as how decisions will be made and how any disputes will be resolved. It should include information on what operations can be delegated to this committee and whether the committee has decision-making power.

This section should state how often members need to attend meetings, and list any meetings that require a physical presence at a specific time and location.

Responsibilities

This section should outline the specific duties and responsibilities of each committee member. It’s a good idea to include details on who will be responsible for chairing important meetings and what information you expect to be reported to the board.

This section should contain information about how you expect this committee to fulfill its duties. You may want to describe how often members need to report, who will host or facilitate meetings, and what types of materials are expected from members.

Standard Committee Procedures

Standard procedures should make it clear which committee members are responsible for specific tasks. It should also specify how materials will be submitted, shared, and reviewed by the individual members and the full committee.

Termination of Membership

This section should clarify whether a member can be removed from the committee as well as who can initiate this process. It may also indicate whether there’s an appeal process if a member feels they’ve been unjustly removed from the committee.

Board Committee Charter Template

Board committee charters should be as detailed and clear as possible. This will help everyone understand the role of each board member, as well as the communication process among members. Here’s a sample template of a board committee charter:

Purpose of Committee

The committee will assist the board in making decisions that will help the organization achieve its annual goals and initiatives. This committee is designed to allow board members who do not have the time to attend all the board meetings to be involved in major decisions.

Membership

The committee will consist of five members who will pair up according to their areas of expertise or interest and rotate positions, so every two months, a new member takes over as chairperson for two weeks.

Authority

This committee only makes recommendations to the board, and it will report to the board at the end of each month. The committee meets at least three times a year in order to reach recommendations that the entire board can put to a vote.

Responsibilities

The chairperson will be responsible for implementing all decisions this committee makes, and will also keep members up-to-date on any decision-making required by the organization.

The board committee charter enables you to effectively organize the roles and responsibilities of the board members, as well as the meeting times, locations, and attendance requirements.

• Be creative. Board meetings may need to be revised or relocated in order to be more efficient. Creativity is key to achieving this goal and will help you consider new ideas.
• Be flexible. It’s important to be open to changes in your own organization that may require you to change your board committee structure. For example, if a new member joins the board, it will be easier for him or her to get up-to-speed if established standing committees already exist.
• Be consistent. Committees are responsible for reviewing policies and recommending changes to policy. Be sure your committee follows the same guidelines the board follows when making these changes.
• Be transparent. When distributing information about new board committees or reporting on the progress of current committees, be sure to use a transparent procedure so everyone can clearly see what’s required of them and when.
• Be specific. While it’s important to provide a general outline of your expectations, it’s also essential to outline the specific tasks that each member needs to fulfill.

Our investment markets and our entire financial system all depend on integrity, honesty and transparency in financial reporting. Honesty means that the reporting of transactions reflects the total reality of what happened. Transparency means there’s no attempt at deceit for personal gain.

Integrity means that the accounting practices of a company adhere to a consistent set of principles such as GAAP or IFRS. When everyone follows the same accounting principles, stakeholders have greater faith that the story those financial statements tell is trustworthy.

Data security

Our first layer of protection is our people. ERM employees understand their responsibilities in protecting both our people’s data and information as well as that of our clients.

Data stored on ERM computers and systems are secured by multiple defensive layers, and we ensure data is protected in transit and at rest. We also back up data regularly to ensure that recovery is possible in the event of a disaster. ERM partners with leading cloud-based providers for its critical services, and we benefit from their inherent robust reliability and user productivity, with security being continuously updated and enhanced.

ERM has developed appropriate policies, processes and procedures as necessary to comply with the EU’s General Data Protection Regulation (GDPR) requirements.

Foundation of a financial report (this is for US GAAP):

• Balance sheet. The balance sheet always has the concepts “Assets” and “Liabilities and Equity”. The value of both of those concepts MUST have the same value (i.e. the balance sheet balances.). Depending on the industry you might have “Current Assets” and “Current Liabilities” (i.e. a classified balance sheet). The computations for “Assets” and “Liabilities and Equity” foot. (In XBRL terms, you have XBRL calculations which prove that the balance sheet computations add up correctly, things roll up.) One could hang other things off the “Assets” and “Liabilities and Equity”; but you definitely have those two concepts and anything that does hang off those concepts adds up correctly.
• Income statement. It seems that there are two concepts what every company will always have: (1) “Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Extraordinary Items, Cumulative Effects of Changes in Accounting Principles, Noncontrolling Interest”, (2) “Earnings per Share, Basic”. There is a “step down” in the income statement; companies only have the steps if they have that component. The components are: Income from Equity Method Investments, Discontinued Operations, Extraordinary Items, Cumulative Effect of Change in Accounting Principle. If you have a noncontrolling interest, then net income is also broken down by what goes to the parent and what goes to the noncontrolling interest. If you have preferred dividends you need to break those out. You may, or may not, break Income from Continuing Operations out for Gross Profit.  But, it seems that (a) one always has Income from Continuing Operations (i.e. if they don’t, are they a viable business?), (b) some easy to figure out step down of net income, and (c) earnings per basic share.  (If I am wrong on this, this is the statement where I am probably making a mistake.  There may be a better way of explaining this.)
• Cash flow statement. Every company has the concept “Cash and Cash Equivalents, Period Increase (Decrease)” (per the US GAAP Taxonomy) or call it “Net Cash Flows”. That concept can be broken down into three other concepts: Net cash flows from operating activities, Net cash flows from investing activities, and Net Cash Flows from Financing Activities.  Companies will highly likely have operating cash flows, it could be that they have no financing or investing cash flows.  It is conceivable that they don’t have operating cash flows because they are not operating companies. There are two other things which could be included in “Net Cash Flows”: Effect of exchange rate on Cash and Net Cash Flows from discontinued operations.  Now, discontinued operations could be configured in a number of different ways, but it is always a part of “Net Cash Flows”.  Effect of exchange rate on cash is a different story, Fine, one must be true.  Either it is ALWAYS part of “Net Cash Flows” (this is what I see in 99% of filings) or it could be part of the reconciliation of cash (i.e. not part of “Net Cash Flow”).  Whatever concept is used for “cash” in the cash flow statement must be the same concept used on the balance sheet. This business rule is ALWAYS true: “Beginning Cash + Net Cash Flows = Ending Cash”.  (Or, alternatively, if exchange gain is NOT part of “Net Cash Flows”; then: “Beginning Cash + Net Cash Flows + Effect of Exchange Rate on Cash = Ending Cash”)
• Statement of Changes in Equity. The beginning and ending balances tie to the balance sheet. Net income shown in this roll forward ties to the income statement. (All the statement of changes in equity is, is a bunch of [Roll Forward]s. There is a [Roll Forward] for every equity account and shares and there is a [Roll Forward] for all the periods shown on the balance sheet.
• Some policies relate to financial statement line items. Some don’t. If they do tie to a line item, the fact that it does tie should be expressed.
• Some disclosures relate to financial statement line items. Some don’t.  The ones that do tie to those line items (i.e. they are the same XBRL concept in the statement and in the disclosure). If the disclosure is supposed to foot, some business rule exists to show that (either an XBRL calculation or an XBRL formula). Things that should be tied together are tied together, be they because they relate to the same class of stock, same entity, same class of some other line item, or in some other thing which should be tied together.

Corporate governance is concerned with the process by which corporate companies and particularly limited liability companies are governed. Business people as well as general public expect good business ethics and effective corporate governance from the business leaders.

In the modern era of globalization, corporate governance plays an important role. It ensures that corporate managers run their businesses successfully and take care of long term interests of the stakeholders of the company. Corporate governance improves capital efficiency of companies and provides a roadmap for an entity, helping the leaders of a company in making decisions by law, benefits to stakeholders, etc.

Corporate governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management of the company and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders of the company. Corporate governance rests with the vision and perception of the leadership and a leader need to adopt a vision for corporate governance.

The role of CS includes advising the Company’s Board of Directors of the Company on good corporate governance practices and compliances with the rules and regulations. The CS is a unique interface between the board as well as Company’s management and acts as a vital link between the board and the business.

Under law, CS has a critical role to play in organizing and implementing board’s decisions, its committees, general body meetings. Now with increased focus on corporate governance, the expectations of the stakeholders from the CS is increasing, and this is what has led to the rise of the importance of the role of CS.

CS as KMP: Duties related to legal compliance

It is worth mentioning here that the position of CS as the KMP (Key Managerial Personnel) comes next to that of the CEO or the MD and underlines the importance of the position of CS in the company. The Companies Act recognizes the position of CS as an officer of the company in its administration as well as legal compliance.

To ensure legal provisions of the Act, the legislature has given CS an important role in the company. Apart from this, with a view to ensure strict compliance with the provisions of the Act, Section 203 provides that every company belonging to such classes of companies should have the following whole time KMP-

• Managing director of CEO or manager and in their absence a whole time director;
• CS;
• Chief Financial officer.

Need for a committee to investigate corporate mismanagement and frauds

It is reported that about 2.50 lakh companies have been identified for de-registration under the Companies Act as part of the measures against curbing menace of companies engaged in illegal activities, and out of it, about 2.2 lakh companies were struck off as they were not carrying on any business activity. 

There have been cases where the companies’ management, despite having respectable independent and representative directors from the banks, have indulged in financial frauds for the benefit of promoters/management in control, and there has been no clear policy by the central government as to how these loopholes in the system can be plugged and how the money that has been looted can be brought back to the economy.

Role of Company Secretary in Good Corporate Governance

Company secretaries all over the world have been assigned the responsibility for good corporate governance practices to be followed by the companies where they work or for their clients by the institute of company secretaries of India.

Under the erstwhile SEBI listing regulations under clause 49 there were provisions for corporate governance. Under new SEBI listing obligations and disclosure requirements there are provisions under regulation 15 to 27 there are provisions for good corporate governance.

Committees appointed by the Board focus on specific areas and take informed decisions within the framework of delegated authority, and make specific recommendations to the Board on matters in their areas or purview. All decisions and recommendations of the committees are placed before the Board for information or for approval.

To enable better and more focused attention on the affairs of the Corporation, the board delegates particular matters to the committees of the board set up for the purpose. Committees review items in great detail before it is placed before the Board for its consideration. These committees prepare the groundwork for decision making and report at the subsequent board meeting.

Audit Committee

The Audit Committee shall assist the Board of Directors in the oversight of

(1) The integrity of the financial statements of the Company,

(2) The effectiveness of the internal control over financial reporting,

(3) The independent registered public accounting firm’s qualifications and independence,

(4) The performance of the Company’s internal audit function and independent registered public accounting firms,

(5) The Company’s compliance with legal and regulatory requirements,

(6) The performance of the Company’s compliance function.

The role of a Remuneration Committee is:

• To decide and approve the terms and conditions for appointment of executive directors and/ or whole time Directors and Remuneration payable to other Directors and matters related thereto.
• To recommend to the Board, the remuneration packages of the Company’s Managing/Joint Managing/ Deputy Managing/Whole time / Executive Directors, including all elements of remuneration package (i.e. salary, benefits, bonuses, perquisites, commission, incentives, stock options, pension, retirement benefits, details of fixed component and performance linked incentives along with the performance criteria, service contracts, notice period, severance fees etc.);
• To be authorized at its duly constituted meeting to determine on behalf of the Board of Directors and on behalf of the shareholders with agreed terms of reference, the Company’s policy on specific remuneration packages for Company’s Managing/Joint Managing/ Deputy Managing/ Whole-time/ Executive Directors, including pension rights and any compensation payment;
• To implement, supervise and administer any share or stock option scheme of the Company.
• to review the overall compensation policy, service agreements and other employment conditions to Executive Directors and senior executives just below the Board of Directors and make appropriate recommendations to the Board of Directors;
• to review the overall compensation policy for Non-Executive Directors and Independent Directors and make appropriate recommendations to the Board of Directors;
• to make recommendations to the Board of Directors on the increments in the remuneration of the Directors;
• to assist the Board in developing and evaluating potential candidates for senior executive positions and to oversee the development of executive succession plans;
• to review and approve on annual basis the corporate goals and objectives with respect to compensation for the senior executives and make appropriate recommendations to the Board of Directors;
• to review and make appropriate recommendations to the Board of Directors on an annual basis the evaluation process and compensation structure for our Company’s officers just below the level of the Board of Directors;
• to provide oversight of the management’s decisions concerning the performance and compensation of other officers of our Company;

Risk Committee:

The committee’s responsibilities include:

• Review and approve for recommendation to the board a risk management policy and plan developed by management. The risk policy and plan are reviewed annually.
• Monitor implementation of the risk policy and plan, ensuring 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.
• Make recommendations to the board on risk indicators, levels of risk tolerance and appetite.
• Monitor that risks are reviewed by management, and that management’s responses to identified risks are within board-approved levels of risk tolerance.
• Ensure risk management assessments are performed regularly by management.
• Issue a formal opinion to the board on the effectiveness of the system and process of risk management.
• Review reporting on risk management that is to be included in the integrated annual report.
• Review annually the charters of the group’s significant subsidiary companies’ risk committees, and their annual assessment of compliance with these charters to establish if the Naspers committee can rely on the work of these risk committees.
• Perform an annual self-assessment of the effectiveness of the committee, reporting these indings to the board.

The roles for an Ethics Committee are:

• Contribute to the continuing definition of the organization’s ethics and compliance standards and procedures.
• Assume responsibility for overall compliance with those standards and procedures.
• Oversee the use of due care in delegating discretionary responsibility.
• Communicate the organization’s ethics and compliance standards and procedures, ensuring the effectiveness of that communication.
• Monitor and audit compliance.
• Oversee enforcement, including the assurance that discipline is uniformly applied.
• Take the steps necessary to ensure that the organization learns from its experiences.