Governance committee: What it is & why boards need one
Many words or terms describe the financial marketplace over the past decade — evolving, volatile, unexpected, shareholder activism, and governance, to name a few. The media regularly portrays corporate scandals, business failings, shareholder unrest and cybersecurity breaches. Good governance, led by an effective board governance committee, is the best tool boards have to ease those pressures.
According to the EY Center for Board Matters, the prevalence of engagement between corporations and investors and other economic factors has created a need to focus more on governance. Subsequently, the role of governance committees must evolve and expand to keep up with the rapid pace of change. To help, this article will explain:
- What a board governance committee is
- The mission of a governance committee
- Typical structure, roles and responsibilities of board governance Committees
- A checklist to increase committee productivity
- Best practices for an effective governance committee
What is a governance committee on a board?
A governance committee is a group that serves as the board’s main resource on governance. These committees support good governance by promoting the healthy development and functioning of the board, its committees and individual members. In this and other ways, the committee helps the board carry out its due diligence.
Committee members typically stay current on trends and changes around governance topics. Part of this work entails comparing their corporation’s governance standards with those of competitors and the broader market. They also underpin the board’s governance structure, including overseeing processes and policies, ensuring compliance, and managing complaints.
Most board committees meet at least quarterly, but they can meet as often as they need to. The CEO is usually a member of the governance committee. All members of the committee prepare regular reports for the full board of directors.
What is the mission of a board governance committee?
A board governance committee exists to support board effectiveness. All boards have governance policies and procedures in place — as do the organizations they serve.
The governance committee helps boards execute their responsibilities according to that framework. That includes everything from training directors on their responsibilities to conducting succession planning and recruiting new members.
Governance committee structure
A governance committee has a similar structure to any other board committee. Eight to ten board directors will serve on the committee, while two of those directors will serve as either the chairperson or the secretary.
- Governance committee chairperson: A chairperson unites other committee members in service of the committee’s purpose. They don’t necessarily manage other directors but lead the way, helping set priorities, evaluate progress, and spur important discussions. Chairpeople also lead committee meetings and report to the broader board.
- Committee secretary: Like the corporate secretary, the committee secretary will keep records of all committee discussions and decisions. They’ll help prepare meeting agendas, take minutes and distribute those minutes to all committee members. The secretary also plays a crucial role in creating board reports.
- Committee members: A handful of other directors will also serve on the committee. They may work together or pursue individual responsibilities that they’ll then report back on. It’s their job to collaborate, communicate openly, and successfully support the committee, the board, and the corporation in implementing good governance.
Governance committee roles & responsibilities
The responsibilities of the governance committee pertain to governing itself, advising the board on governance principles and working to compose a diverse, skilled board. In recent years, the governance committee’s role has expanded to include involvement in shareholder engagement and risk management.
- Defining committee goals: In governing itself, a governance committee is responsible for reviewing and revising the committee’s job description, which normally occurs every two years or so. At this time, the committee may make recommendations to the board to revise the committee’s job description or make other recommendations to the board for action.
- Guiding governance: The governance committee is the board’s primary resource on governance issues. By staying current on governance trends, the committee monitors the effectiveness of board operations, board performance and governance policies.
- Overseeing compliance: Duties of the governance committee include recommending action to the board for structural changes to ensure the company complies with its legal and fiduciary duties. The governance committee is accountable for the board’s and the company’s governance guidelines and policies.
- New member recruitment and onboarding: Shareholder activism has been on the rise, placing a renewed focus on board composition, board diversity and board refreshment. Governance boards take the lead in developing a purposeful process for recruiting and nominating a slate of qualified board members who are best suited for achieving the corporation’s mission. Succession planning is a major activity of governance committees, along with orienting, onboarding, training and evaluating board directors.
- Engaging with shareholders: In some cases, recent instability in the marketplace has led boards to expand the responsibilities of their governance committees to shareholder proposals and engagement. According to EY, 48% of boards reported that their governance committees oversee areas such as political spending, environmental sustainability, communications, proxy filings and other stakeholder areas. Along those lines, 19% of boards said that they felt their directors should represent the interests of all shareholders, and their boards expected their governance committees to shift to a long-term focus. Governance committees are more inclined to consider candidates recommended by shareholders and management for the nomination pool than in the past. However, they acknowledged that they weren’t under any obligation to consider candidates suggested by management.
- Managing risk: Another area that boards have been delegating to their governance committees is some degree of risk management. EY states that 15% of the board's reporting stated that their governance committees took accountability for the company’s reputation, non-financial risks, enterprise management risks, business continuity plans, and safety strategies. Additional new challenges for governance committees include navigating changes in regulations, technology, workforce demographics and disruptions to the business model.
- Navigating digital transformation: There’s been a substantial increase in board use of digital tools, such as board portals, secure messaging platforms and other software solutions that support good corporate governance. Diligent Corporation is the industry’s leading, trusted name in board governance software and has a proven track record for excellence. Diligent’s customers can count on being offered innovative governance software solutions that support good governance today and in the future.
Checklist for a top-level board governance committee
In recent years, the enhanced focus on corporate governance has added similar intensity to board governance committees. The committee must govern the individuals who, in turn, govern the corporation. As the to-do list grows, a governance committee checklist can help the chairperson, and their fellow members hit key committee milestones throughout the year.
What a checklist contains may vary between boards, but most lists will generally include tasks like:
- Succession planning
- Recruiting new board members
- Onboarding new board members
- Director performance evaluations
- Overseeing board meetings
- Maintaining good governance within the board
- Engaging with all directors
- Facilitating learning opportunities
Best practices for an effective board governance committee
Governance committees play a key role in evaluating the board’s performance and educating the board on good corporate governance. It’s an important role but also one that can be on relatively shaking ground; offering guidance to directors can call for constructive criticism as often as it does positive affirmation. Following these best practices will help governance committees successfully navigate the main personalities and priorities on a board of directors.
- Regularly evaluate board performance: The EY report shows that 98% of governance committees perform board evaluations annually. About 70% of governance committees oversee board committee evaluations, and about 35% of governance committees oversee individual director evaluations. A little over half of governance committees oversee or provide for director orientation and continuing board director education.
- Don’t automatically offer new terms: It’s been a longstanding practice of boards for board directors to serve long tenures. About 38% of the boards surveyed by EY stated that their board directors shouldn’t expect an automatic renomination. Governance boards now consider each director’s performance and contributions during their board tenure before offering board directors a new term.
- Take board composition seriously: Boards are more diverse than ever. Yet, more progress is still required to assemble boards as diverse as their stakeholders. Only 1% of boards have policies related to LGBTQIA+ representation at the governance level. This is just one example of the opportunity board governance committees have to push even further in finding highly skilled candidates with a variety of backgrounds capable of leading modern businesses into an uncertain future.
- Engage with stakeholders: 73% of institutional investors say shareholder engagement influences their approach to responsible investing. Governance committees should harness that focus by encouraging boards to meaningfully engage with shareholders. By understanding shareholder expectations, boards can create more value related to those investments and ultimately keep the corporation competitive.
- Encouraged continuing education: The modern business landscape evolves at a breakneck pace. Yet, many directors struggle to keep up. Governance committees are critical in creating an environment that prioritizes board education — and penalizes complacency. Boards should have a firm grasp of emerging technology, key issues like environmental, social and governance (ESG) and global crises that impact how the corporation does business.
Turn your governance committee into a tool for board effectiveness
Governance committees will continue to be bound by the traditional roles of overseeing governance policies and practices. But as the governance habits of corporations continue to be scrutinized heavily, that role should evolve into more hands-on guidance.
Governance committees can play a key part in keeping corporations responsive to changing trends, assuming they have the right infrastructure behind them. Board management software can be equally useful to governance committees, automating committee checklists, managing board evaluations and more. Learn more about the Diligent Board Portal or request a demo.