Board committees

Delegation of duties

While the board may delegate certain responsibilities to board committees, it retains ultimate responsibility for the issuer’s corporate governance and should reach its own conclusions regarding the recommendations that it receives from the board committees. The core committees of the board are the nomination, audit and remuneration committees.
To perform its duties effectively, each board committee should:
- Have clear written terms of reference setting out its responsibilities and delegated authority.
- Comprise of members with relevant expertise and experience.
- Be provided with sufficient information and reasonable resources to carry out its role and functions.
- Maintain clear communication channels with other board committees and the board.

Nomination Committee

Composition: The nomination committee is chaired by the chair of the board or an INED and comprises a majority of INEDs. It should have at least one director of a different gender.
Board recruitment: The nomination committee’s key role is board recruitment. It must assess the optimal composition of the board, taking into account the issuer’s culture, strategies, objectives, the operation of the existing board and its collective skillset, and prepare a description of the role and capabilities required for a particular board appointment (e.g. skills, experience, expected time commitment) accordingly. The committee should consider different recruitment channels e.g. networking, recruitment agencies and board appointment platforms, and referrals from business acquaintances and peer industry circles. A fair and open recruitment process should be conducted to select the most suitable candidate to fill a board vacancy.
Annual assessment of directors’ time commitment and board contribution: The nomination committee is responsible for conducting this assessment, which will help strengthen director accountability. Please refer to the section on the Annual nomination committee assessment for further details.
Board skills matrix: To focus the search effort for a new director, the board should develop a list of desirable skills, perspectives and experience at the outset of the selection process. Reference should be made to the board skills matrix, which the nomination committee helps to maintain. Please refer to the section on the board skills matrix for further details.
Board performance review: The nomination committee supports the issuer’s regular board performance reviews. It should use the findings from the reviews to inform its thinking on whether, and how, the board composition should be adjusted to optimize performance. Please refer to the section on board performance review for further details.
Board refreshment: The nomination committee should be mindful of the need to refresh the board regularly to avoid entrenchment and attract fresh thinking.
Succession planning: The nomination committee must consider succession planning to ensure the long-term success of the issuer. A robust long-term succession plan considers the skills that the board currently has and is likely to need in the future. It also asks what professional and personal attributes may be missing from the boardroom. The committee should periodically review the succession plan as the needs of the company and the board may change over time.
Nomination policy: There should be an established policy on how potential directors can be identified. The director selection process should be rigorous, transparent and fair.

Practical considerations when formulating the nomination policy

Audit committee

Composition: The audit committee is chaired by an INED and comprises a majority of INEDs.
Integrity of financial statements: One important function of the audit committee is to monitor and assess the integrity of the issuer’s financial statements, annual and interim reports and accounts. It should critically consider any significant or unusual items reflected therein or raised by internal staff or the external auditor, and whether the financial reporting disclosures are consistent and transparent. The audit committee should hold thorough discussions with the external auditors at least twice a year regarding the review of the issuer’s financial information.
Monitor internal audit function: The audit committee should ensure that the internal audit function (where such function exists) is adequately resourced and has appropriate standing within the issuer, and review and monitor its effectiveness. “Adequately resourced” means that relevant staff have appropriate qualifications, experience, integrity and independence of mind.
Oversight of risk management and internal controls: The audit committee should review and monitor the issuer’s risk management and internal controls (unless such duties are delegated to another committee). Its work includes discussing with management to ensure that management has performed its duty to implement and maintain effective systems; considering investigation findings on risk management and internal control matters; and reporting to the board.
Work with management: The audit committee must be proactive in understanding the affairs of the issuer and investigating any red flags that it has identified or been made aware of. The committee should form a good working relationship with management, who should explain to it the judgments of key assumptions underlying critical accounting estimates, as these can significantly impact the key balances in an issuer’s financial statements.
Engagement of external auditors: The audit committee is responsible for making recommendations to the board on the appointment, re-appointment and removal of the external auditor, based on factors such as the auditor’s ethics, knowledge, experience and capacity. It is also responsible for approving the remuneration and terms of engagement of the external auditor and handling any questions of its resignation or dismissal.
Oversight of the issuer’s relationship with the external auditors: The following are suggestions on how the audit committee may achieve good oversight:
- Establish procedures to review and monitor the independence of the external auditors, which may include:
  - Considering all relationships between the issuer and the audit firm (including non-audit services);
  - Obtaining from the audit firm, annually, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements, including those for rotation of audit partners and staff; and
  - Meeting with the auditor, at least annually in the absence of management, to discuss matters relating to its audit fees, any issues arising from the audit and any other matters the auditor may wish to raise.
- Agree with the board the issuer’s policies on hiring employees or former employees of the external auditors and monitoring the application of these policies. The audit committee should then be in a position to consider whether there has been, or appears to be, any impairment of the auditor’s judgement or independence for the audit.
- Ensure that the external auditor’s provision of non-audit services does not impair its independence or objectivity. The audit committee is encouraged to consider:
  - Whether the skills and experience of the audit firm make it a suitable supplier of non-audit services;
  - Whether there are safeguards in place to ensure that there is no threat to the objectivity and independence of the audit because the external auditor provides non-audit services;
  - The nature of the non-audit services, the related fee levels and fee levels, individually and in total, relative to the audit firm; and
  - The criteria for the compensation of the individuals performing the audit.
Disagreement with the board: Where the board disagrees with the audit committee’s views on the selection, appointment, resignation or dismissal of the external auditor, the CG Code requires the issuer to explain this disagreement in the corporate governance report.
For further guidance on the terms of reference for an audit committee and its relationship with the external auditor, issuers may refer to the “Principles of Auditor Independence and the Role of Corporate Governance in Monitoring an Auditor’s Independence” issued by the Technical Committee of IOSCO and the “Guidelines for Effective Audit Committees – Selection, Appointment and Reappointment of Auditors” published by the Accounting and Financial Reporting Council.

Remuneration committee

Other board committees

The board may establish other board committees depending on the issuer’s individual circumstances and business needs, for example, a corporate governance committee, a risk management committee and/or a sustainability committee.
Corporate governance committee: The board may set up a corporate governance committee to oversee the issuer’s corporate governance policies and practices. A dedicated corporate governance committee may help ensure that an issuer devotes appropriate attention, time and resources to compliance issues. It is important for issuers to continuously tailor their compliance to evolving corporate governance standards to fit their own circumstances.
Risk management committee: The board may set up a risk management committee to oversee the issuer’s risk management and internal controls framework, policies and systems (other than those which are overseen by the audit committee). The committee’s work may include monitoring management’s implementation of effective systems and considering investigation findings on risk management and internal control matters. The committee should advise the board on significant business and regulatory risks (current and emerging); oversee the development of risk mitigation strategies; and make recommendations on the risk appetite, profile and tolerance of the group.
Sustainability committee: The board may form a sustainability committee to oversee the management of sustainability and ESG (including climate-related) issues. The committee’s responsibilities may include overseeing the implementation of the group sustainability strategy; reviewing and monitoring sustainability reporting; assessing emerging sustainability trends, risks and opportunities that could impact the business operations and performance of the group; and reviewing the group’s sustainability performance, including progress made against relevant goals and targets.