ONE of the key functionalities of a board are committees. A board cannot, in the limited time it has when they meet, delve into every aspect of the business comprehensively enough to unpack all the issues.
Therefore, for the board to be effective it must divide duties amongst its members sitting in committees. The committees’ primary role is to gather information and make recommendations to the rest of the board in order for a collective board decision to be made.
The different committees are tasked with governing specific areas of the organisation. However, the board remains accountable for all actions or omissions of its committees.
In Zimbabwe, the rules relating to board committees, which should be in place for sound corporate governance, are contained in, inter-alia:
The Companies and Other Business Entities Act [Chapter 24:31],
The Zimbabwe’s National Code of Corporate Governance (ZimCode),
Reserve Bank of Zimbabwe’s Directive on Corporate Governance (2004), and
The Securities Exchange Commission of Zimbabwe’s rules for Corporate Governance 2010 and 2022.
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The rules are vast and apply to different companies in different ways.
This article highlights the critical aspects concerning board committees.
It, in no-way, contains all the relevant provisions under the law.
Professional legal advice should be sought by different companies, in the various industries on what the law requires of that type of company, as regards board committees.
Generally, board committees collect information on specific areas and thereafter feed to the board for discussion. It must be noted that committees are not autonomous from the board, but instead only work as small groups tasked to oversee specific areas of the organisation.
The committee should have comprehensive terms of reference to ensure they carry out the specific duties assigned to them. There is also no limit, in law, as to the number of committees each board may have.
A board can have as many committees as it requires based on its corporate governance policies, set objectives, size and revenue and the number of board members.
The Companies and Other Business Entities Act [Chapter 24:31] mandates every public company to have an audit committee.
Although other types of companies in the Act are not required by law to have audit committees, it is recommended that all companies have an audit committee.
The audit committee is critical, as it is the watchdog for shareholders ensuring financial management including internal control, is executed prudently.
The Securities Exchange Commission of Zimbabwe’s rules for Corporate Governance requires that boards of registered securities exchanges and licensed persons establish an Audit Committee as well as Nominations committee.
The nominations committee is tasked with the duty of scouting and sourcing potential board members. It is a key committee for succession planning.
In addition to the audit committee, the Reserve Bank of Zimbabwe’s Directive on Corporate Governance requires each banking institution to have a board credit committee, a loans review committee, a risk management committee, an asset and liability committee (ALCO) and an executive committee.
The board credit committee is responsible for, amongst other things, reviewing and approving credit-related strategies and policies for the bank, and its divisions and subsidiaries.
The loans review committee has a number of responsibilities including assisting the board with discharging its responsibility to review the quality of the banking institution's loan portfolio.
The risk committee assists the board in the discharge of its duties relating to corporate accountability and associated risks in terms of management, assurance and reporting. The responsibility of ensuring quality, integrity and reliability of the banking institution's risk management is the responsibility of the Risk Management Committee.
The ALCO is responsible for developing the most appropriate strategy for the banking institution, having regard to the mix of assets and liabilities given its expectations of the future and the potential consequences of interest rate movements, liquidity constraints, and foreign exchange exposure and capital adequacy.
The executive committee is the link between the board and management and is responsible for implementation of operational plans, annual budgeting and periodic reviews of group operations, strategic plans, ALCO strategies, credit proposals review, identification and management of key risks and opportunities. It also reviews and approves guidelines for employees' remuneration.
ZimCode states that the essential board committees are the audit committee, risk committee, dispute resolution committee and remuneration committee.
The purpose of the remuneration committee is detailed to include determining the remuneration for executive board members and the entity's senior staff members. The committee is required to have a system in place that allocates remuneration packages based on industry standard, performance, targets meet and other components it deems necessary.
The dispute resolution committee is tasked with considering and resolving different types of disputes in the company.
A number of other committees are recommended in terms of international best practice in corporate governance. For example, the health and safety committee, which ensures the health and safety of key stakeholders, like the employees of the company, the health and safety of communities where the company operates, and the health and safety of the product produced by the company.
This committee is especially critical for companies in the food processing or production industry, where the committee must ensure adequate policies and procedures are in place that continuously check the safety of products before they are shipped to customers.
A legal and compliance committee is also critical in ensuring that the company and its directors operate within the law and comply with any operational licences and regulations.
This committee plays a vital role in risk management, making sure all business dealings be it operational, financial and others are handled within the law.
We are currently between the fourth and fifth industrial revolution where the world is increasingly relying on technology, like Artificial Intelligence (AI), digital platforms, augmented and virtual reality, and 3D printing.
Thus another important committee, which should be established, is the Information Technology Committee. The IT committee plays a pivotal role in ensuring that the company is technologically equipped and at the same time ensuring cyber security, corporate espionage and other threats that come with technology are managed adequately.
In addition, the social and ethics committee, is vital and recommended by international best practice. The committee is tasked with the important duty of guaranteeing that the company is a good corporate citizen by detailing policies and implementing practises across the company that tackle ethics, transformation and social issues.
The foregoing is by no means an exhaustive list, it is critical for each company to assess its business and the committees it believes are necessary for the board to effectively carry out their duties.
For companies in certain industries, extra care must be taken when establishing board committees, to ensure that the minimum committees required by their regulator or legislation applicable in that sector are present.
In addition, the reports of the different board committees, should be effectively communicated to the board and other committees to promote transparency and full disclosure across the different committees.
Moreover, it is best practice that all board committees be chaired by an independent non-executive director, with exception of the executive board committee.
Disclaimer:
The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice.
Moyo is a lawyer practicing in Zimbabwe and co-author of the Directors Handbook in Zimbabwe, a comprehensive guide on the company law provisions every director must know. These weekly New Horizon articles, published in the Zimbabwe Independent, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Pvt) Ltd, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — kadenge.zes@gmail.com or mobile: +263 772 382 852.
