BOARD COMMITTEES

The Board Committees are a small group of people set up to perform specific work, which
require expertise in that area, assisting the Board of Directors in functioning smoothly and taking
effective decisions. All the Committees serve different functions like Governance, Coordination,
or Research and recommendations.
Board Committees constitute an important element of the governance process and should be
established with clearly agreed reporting procedures and a written scope of authority. The Act
recognises the right of a Board to establish board committees but by doing so, the board is not
exonerated of complying with its legal responsibilities. 1

The various committees are:

1. Audit Committee
2. Nomination and Remuneration Committee
3. Corporate Social Responsibility Committee
4. Risk Management Committee
5. Stakeholders Relationship Committee
6. Ethics Committee
7. Corporate Governance Committee

1. Audit Committee

The Committee focuses on good corporate governance through enhanced accountability and
transparency of a company’s financial reporting thereby increasing the confidence regarding
integrity of the Company in terms of its risk management, internal central process. It is really
important that the Nomination Committee fulfils its purpose properly so that there are skilled and
qualified members in the Audit Committee. Section 177 read with Rule 6 of the Companies
Rules, 2014 specifies three classes of companies which are required to appoint an Audit
Committee. The Audit Committee bears sole responsibility for its decisions pertaining to the
appointment, fees and terms of engagement of the auditor. On all other matters it remains
accountable to the Board.
Composition of the Audit Committee:
The Committee shall consist of a minimum of three directors with independent directors being in
the majority.
Functions of the Audit Committee:

1. Monitoring the use of funds collected through public offers.

2. Reviewing along with the management the financial statements of the company.
3. Scrutiny of inter-corporate loans.
4. Examination of auditor reports.

1 King III principle 2.23 par 125

 5. Approval of related party transactions, etc.

2. Nomination and Remuneration Committee

As per section 178 read with rule 6 of the Companies (Meetings of the Board and its Powers)
Rules, 2014, the Board of directors of every listed company and the certain classes of companies
are required to constitute a Nomination and Remuneration Committee of the Board.
The Nomination Committee reviews the composition of the Board, rectifies where there is lack
of skills, or, comes up with a succession plan to mitigate risk in case of loss of any key person in
the Board. Whereas the remuneration part of the Committee plays a crucial role in good
corporate governance as it focuses solely on the level and forms of remuneration given to
Directors. They need to come up with a structure where the remuneration is not over generous
however, it is of such level that it attracts the desired quality of individuals to the Board.

Composition of the Committee:

The Committee constituted by the Board shall consist of three or more non-executive directors
out of which not less than one-half shall be independent directors. The Chairperson of the
company (whether executive or non-executive) may be appointed as a member of the
Nomination and Remuneration Committee but he shall not chair such Committee.
Functions of the Committee:

1. Identification, recommendation, and removal for the post of directors and further evaluate
performance of every Director.
2. Formulating a remuneration policy(shall be disclosed in Board’s Report) with various
criteria to determine the remuneration. The policy shall consist of a level of
remuneration, relationship of remuneration and relationship, and remuneration to
directors, key managerial personnel and senior management which strikes the right
balance between fixed pay and incentive pay.
3. Come up with adequate succession plans.
However, the final say is of the Shareholders.

3. Corporate Social Responsibility Committee

Sec 135 (1) read with rule 3 of Companies (Corporate Social Responsibility Policy) Rules, 2014,
mandates every company (which may include a holding company or a subsidiary company)
having:
(a) net worth of Rupees 500 crores or more,or;
(b) turnover of Rupees 10,000 Crores or more or;
(c) a net profit of rupees five crore or more
during any financial year to constitute a Corporate Social Responsibility (CSR) Committee.
The Committee lays down various recommendations and forms a CSR Policy that specifies the
various CSR projects undertaken by the Company and the progress of these projects. The
Committee plays an important role in helping the company to fulfil its responsibilities towards
the society by performing activities mentioned in Schedule VII.
Composition of the Committee:
It shall consist of three or more directors, out of which at least one director shall be an
independent director. In case of Unlisted Public Company or Private Company where
Independent Director is not a requirement, the committee will be formed without such a director
and in a private company with only two directors, its CSR Committee will be formed with these
two directors.
Functions of the Committee:

1. To formulate and recommend a CSR policy to the Board.

2. Recommend the amount of expenditure to be incurred on the activities.
3. Monitoring the CSR Policy from time to time.
4. Instituting a transparent monitoring mechanism for implementation of CSR Activities.

4. Risk Management Committee

The Revised Clause 49 of the Listing agreements requires formation of a Risk Management
Committee through the Board. The formation of a Risk Management Committee despite the
existence of an Audit Committee is two fold; first, risk management is beyond just the financial
focuses and second the Audit committee should be an independent oversight body otherwise
there would be detrimental effect on the objectivity of the Audit Committee. The Board defines
the roles and responsibilities of the Committee and also delegates functions regarding risk
management plan(monitored, framed by the Board) to the Committee. The Committee helps in
identifying the risks and to come up with appropriate measures to deal with them.
Composition of the Committee:
Majorly it should consist of members of Board of Directors or Senior Executives. However, the
Chairman shall be a member of the Board of Directors.

Functions of the Committee:

1. Identify the risks and consider the risk policy and plan.
2. Determine company’s risk appetite and risk tolerance.
3. Ensure risk assessment are performed regularly.
4. Monitoring the Risk Management Plan.
 5. Stakeholders Relationship Committee

Sub-Section(5) of section 178 and Clause 49 of the Listing Agreement provides that the Board of
Directors of a company which consists of more than one thousand shareholders, debenture-
holders, deposit-holders and any other security holders at any time during a financial year shall
constitute a Stakeholders Relationship Committee. This Committee mainly resolves the
grievances of all the security holders of the Company. It assists the board in fulfilling all the
statutory, fiduciary and regulatory responsibilities and strengthens corporate governance by
maintaining internal management of the company. As per the Charter issued by Wipro, the
Shareholders/Investors Grievance Committee is also known as Stakeholders Relationship
Committee, the only difference is under the former committee the grievances of only
shareholders and investors are taken consideration, however, in the latter committee including
the shareholders and investors all the other stakeholders grievances are taken into consideration
and further resolved.

Composition of the Committee:

Chairperson shall a non-executive director and other members as decided by the Board.
Functions of the Board:

1. Formulation of procedure to ensure speedy disposal of the grievances of all the security
holders.
2. Broader definition of the Committee allows companies to use discretion in resolving
disputes, mechanisms to be followed.
3. To approve transmissions of shares as a result of death of any shareholder.
4. Redressal of shareholders and investor complaints/ grievances e.g. transfer of shares,
non-receipt of balance sheet, non-receipt of declared dividend etc.

If any Company fails to comply with the constitution of above-mentioned Committees except
Risk Management Committee, penal provisions mentioned under the Companies Act are
attracted.

6. Ethics Committee

The Ethics Committee helps in continuing the defined ethics and overall compliance with
standards and procedure. It ensures that there is effective communication within the organixation
while overseeing the that the disciplined is uniformly applied. Further it takes necessary steps to
ensure that the organisation learns from its experiences.

7. Corporate Governance Committee

It rounds out the three standing committees i.e., audit, nominating and remuneration committee.
The main purpose is to enhance the quality of the nominees, ensure integrity in the functioning
of the Company , focus on diversity involved in the composition of the Board, etc. It plays an
important role overseeing matters related to corporate governance for the Board.

For example, In 2013 Nasscomm established the Corporate and Ethic Committee as a permanent
sub-committee headed by the Chairman of the Company. The initiative was taken to strengthen
Corporate Governance. The last two committees usually don’t exist in Indian Companies.

Conclusion
The purpose of all the above-mentioned Committees is to provide good corporate governance in
the areas of its respective expertise. The Board Committees have been so helpful for the
Companies because of the need of greater specialisation and intricacies in functioning of modern
Board work. While the Board as a legal unit has always retained the responsibility for the work
of its committees, the committees because of its focus on the mandate, the size of the committee
being relatively smaller than the Board have resulted in better effective functioning. Therefore, it
is important that there is clarity of delegation and given some discretion to function smoothly
and effectively.