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Pt 2 CATEGORY 3 : Governing Structure and Delegation - Coggle Diagram
Pt 2
CATEGORY 3 : Governing Structure and Delegation
Committees of the Governing Body
Principle 8: . The GB should ensure that its arrangements for delegation within its own structures promote independent judgement, and assist with the balance of power and the effective discharge of its duties
General recommended best practices
Terms of reference to include:
a. Composition of sub-com and process for appointment of non-GB members to sub-com
b. overall roles and responsibilities and functions
c. Delegated decision-making authority
d. Tenure (this means the length of time someone may serve on the committee - means a limitation on the time)
e. when and how to report back to GB
f. committee's access to resources and information
g. meeting procedures
h. arrangements for performance evaluation
TOR to include:
a. composition and appointment
b. roles, responsibilities and functions
c. decision-making authority
d. Tenure
e. reporting to GB
f. resources and information
g. meetings
h. performance evaluation
The GB should look at all the sub-committees holistically (in one picture) so that it gets the following right:
a. committees work effectively together (collaborate) through cross-membership (same person, two committees, brings information from each to the other)
b. that there is no duplication of roles between committees without clarity on who is ultimately responsible
c. balanced power across sub-coms - so no one person has so much influence that they can dominate decision-making
Holistically, GB to ensure that there is effective collaboration between subcoms, no duplication of responsibility and no dominance of power
Delegation to sub-committees must be in a formal terms of reference document and must be approved by the GB and reviewed annually
Delegation to committees to be in terms of reference, approved and annually reviewed
Delegation to individuals must be in writing and approved by the GB - nature and extent of responsibilities delegated, decision-making authority, duration of delegation, reporting responsibilities
Delegation to individuals - terms and deliverables to be in writing and approved
If the GB does not delegate, then it must fulfil those duties itself
If no delegation, GB does everything
Each sub-com must have the right balance of knowledge, skills and experience and capacity
Balance of knowledge, skills, experience and capacity
GB must decide if and when to delegate any of its roles and responsibilities, taking into account any legal requirements (CosAct) and what is best for the organisation. It may delegate to:
individuals
GB sub-committees
ad-hoc committees (not permanent - called for a specific purpose and result, and then discharged)
GB must decide if and when and which of its responsibilities to delegate to who
Each sub-committee shoud have a minimum of three members
Minimum 3 members
Any GB member may attend any sub-com meeting as an observer, with consent of the chair, but does not have a vote and does not get paid for attendance if not a member
GB members may attend any meeting as observer
Despite delegation, the GB still remains accountable and responsible and should still apply its collective mind to the recommendation, decisions, reports etc of the sub-committees
Delegation does not remove overall GB responsibility
Disclosure for each sub-com:
a. overall role, responsibilites and functions
b. composition - including each members' qualifications and experience
c. external advisors or invitees that regularly attend meetings
d. key focus areas
e. number of meetings held and attendance
f. whether it has fulfilled it's responsibilities
Disclosure per sub comm:
a. role and resp
b. composition
c. advisors
d. key focus areas
e. meetings and attendance
f. whether fulfilled responsibilities
Audit committee
Regardless of whether the audit committee also covers risk governance or not, it is still responsible for the management of risks that affect the integrity of external reports issued by the organisation
Audit com must manage risks that affect the integrity of external reports
Members of the audit com must have the necessary financial literacy, skills and experience to executive their duties effectively
Audit com members to be suitably financially literate and skilled
If the GB gives risk governance to the audit committee as well, it must make sure it has enough time to deal with it properly
If audit com and risk com are combined, audit com must make sure it devotes enough time to risk governance matters
All members to be independent, non-executive GB members
All members to be indepenent, non-executive GB members
A statutory audit committee (CosAct requirements) will have related decision-making power. In addition to these duties, the GB may delegate other responsibilities to the audit committee, like approval of AFS
GB may delegate duties to audit com eg approval of AFS
The chair of the audit com should be independent, non-executive.
Chair to be independent, non-exec
For any company publishing AUDITED financial statements, the GB should consider setting up an audit committee to provide independent oversight of:
a. the effectivness of the organisation's assurance functions and services and combined assurance arrangements (external audit, internal audit and finance function)
b. integrity of the AFS and other reports of the organisation
Audit committee to provide independent oversight over the organisation's combined assurance functions and integrity of the AFS
The audit com should meet annually with the external and internal auditors without management there, so that they can have an open discussion about any concerns relating to the assurance functions
AC to meet internal and external auditors annually without management
Disclosures from audit committee (over and above statutory disclosures):
a. Statement about external auditor's indepdence, which specifically covers:
i. policy, controls and extent of work relating to non-audit services provided by the external auditor
ii. tenure of the external audit firm
iii. rotation of the audit partner
iv. significant changes in the organisation's management during the auditor's term (because this may reduce familiarity threats relating to the auditor's independence)
b. Significant matters that relate to the AFS that the committee considered
c. the audit committee's views on the external audit's quality
d. the audit committee's views on internal audit - meaning the chief audit executive (head of internal audit) and the rest of the internal audit function
e. the audit committee's views on the design and implementation of the system of internal control, including the nature and extent of significant weaknesses in the system of internal control, that resulted in financial loss, fraud, corruption or error
f. the audit committee's views on the effectiveness of the CFO and the finance function
g. the arrangements in place for combined assurance and the committees views on its effectiveness
Disclosure from AC must include:
a. the external auditor's independence
b. significant matters relating to the AFS
c. the quality of external audit
d. internal audit
e. internal control and significant weaknesses therein
f. CFO and finance function
g. combined assurance mechanisms and their effectiveness
Nominations committee (committee responsible for nominations of members of the GB)
All members of this committee should be non-executive GB members, with the majority being independent
All non-exec, majority independent
Disclosure requirements - as for under general
Disclosure per sub comm:
a. role and resp
b. composition
c. advisors
d. key focus areas
e. meetings and attendance
f. whether fulfilled responsibilities
The GB should consider allocating the oversight of nominations to a dedicated committee or including it in another committee as follows:
a. the process for nominating, electing and appointing GB members
b. succession planning
c. evaluation of performance of the GB
Nominations committee duties:
a. nomination, election and appointment of GB members
b. succession planning
c. performance evaluation
Risk governance committee
If this is separate from the audit committee, there should be joint membership by one or more of the committee members
Joint membership with audit committee
Members of this committee should be both exec and non-executive GB members, with the majority being non-exec
Exec and non-exec, majority non-exec
The GB should consider allocating the oversight of risk governance to a dedicated committee or including it in another committee
Consider a risk governance committee
Disclosure requirements - as for under general
Disclosure per sub comm:
a. role and resp
b. composition
c. advisors
d. key focus areas
e. meetings and attendance
f. whether fulfilled responsibilities
Remuneration committee
All members of this committee should be non-executive GB members, with the majority being independent
All non-exec, majority independent
Chair must be independent, non-executive GB member and not the chair of the GB
Chair to be independent, non-exec
The GB should consider allocating the oversight of remuneration to a dedicated committee or including it in another committee
Consider a remuneration committee
Disclosure requirements - as for under general
Disclosure per sub comm:
a. role and resp
b. composition
c. advisors
d. key focus areas
e. meetings and attendance
f. whether fulfilled responsibilities
Social and ethics committee
Members of this committee should be both exec and non-executive GB members, with the majority being non-exec
Exec and non-exec, majority non-exec
Responsibilities would include statutory responsibilities plus others as delegated by the GB
GB to delegate responsibilities
Disclosure requirements - as for under general
Disclosure per sub comm:
a. role and resp
b. composition
c. advisors
d. key focus areas
e. meetings and attendance
f. whether fulfilled responsibilities
The GB should consider allocating the oversight of, and reporting on, organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships to a dedicated committee or including it in another committee (where it isn't already required to have one by law)
Consider a social and ethics committee to oversee and report on:
organisational ethics
resp corp citizenship
sustainable development
stakeholder relationships
delegation to sub-committees of the board (within own structures)
This is also a long section. The best practicse are broken down into critical areas, and each area has best practices. The areas are:
General
Audit committee
Nominations committee
Risk governance committee
Remuneration committee
Social and ethics committee
Evaluations of the performance of the Governing Body
Principle 9. The GB should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance effectiveness
The evaluation process should be formal and facilitated by an external source, or else follow a process that has not been approved by the GB (you can't decide how to evaluate your own performance - you risk being biased towards yourself), and this process should be followed at least every two years
Formal, independently facilitated process at least once every 2 years
Every alternative year (the year in between 3 above), the GB must include a formal discussion around it's own performance
Every other year, still consider own performance
The GB should appoint an independent non-exec (preferrably the lead) to evaluate the performance of the chair
Chair to be evaluated by another independent non-exec
Disclosure:
a. description of the performance evaluations done and whether they were formal or informal, external or internal
b. overview of evaluation results and remedial actions taken (i.e. where results were not good, what actions were taken to fix it)
c. Whether the GB is satisfied that the evaluation process is helping to improve its effectiveness and performance
Disclose:
a. what evaluations were done and how
b. overview of results and corrective actions
c. whether process is helping
The GB should take responsibility for evaluating its own performance by deciding how it should be approached and conducted
GB to take responsibility for deciding on how it should be evaluated
evaluation of its own performance (which includes GB, sub-coms, members and chair)
improvement in performance effectiveness
Appointment and Delegation to management
Principle10. The GB should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities
Delegation
The framework must include the authority to appoint executives who will serve as ex-officio members of the GB (they are on the GB because of the executive positions that they hold in the company) and make other executive appointments
Framework to include authority to make executive appointments
The GB should approve a delagations framework that states the decisions in 1 above
Delelgations framework
GB should oversee that key management functions are:
b. adequately resourced (have enough staff and capacity)
a. headed by someone with the necessary competence and authority
Management functions to be headed by suitably qualified competent people who have the right resources available to them
The GB must decide on the direction and boundaries for the powers it keeps for itself and which it delegates to management via the CEO
GB to set guidelines for delegation of powers
The GB must ensure there is succession planning in place for executive management
Executive management succession
planning
Disclosure:
Whether the GB is satisfied that the delegation framework contirbutes to role clarity and the effective exercise of authority and responsibility (this means that the way the delegation framework is written makes it very clear who should be doing what, who should report to who, who has clear authority to make what decisions and who has to take responsibility for what)
Disclosure: statement about the
delegation framework
Professional corporate governance services to the governing body
GB should ensure that the office of company secretary is empowered and carries the necessary authority
Empowerment and authority of company secretary position
GB should decide whether to outsource professional CG services or make it a full time or part time appointment
Decide whether to outsource or
employ company secretary
Appointment and remuneration of the company secretary to be approved by the GB including ensuring competence, objectivity and independence
Appointment and remuneration, including independence, objectivity and competence
Even when not legally obliged, the GB should appoint a company secretary to advice on legal and corporate governance matters and provide professional services.
Professional company secretary
GB responsibility to remove appointment if necessary (as opposed to someone else - GB responsible for appointment and removal - not the
CEO)
GB to remove company secretary if necessary
The GB must have access to professional and independet guidance on CG matters and it's legal duties
GB to have access to professional experts where needed
Company secretary to have no limits on access to GB members, but must maintain independence in relationships with GB members
Company secretary - unlimited access but maintain independence
Company secretary to report to GB via the Chair of the GB for all statutory matters, and to the CEO or delegation for administrative and other matters
Company secretary reports to GB Chair for statutory matters and CEO for admin matters
Annual performance evaluation of the company secretary
Annual performance evaluation
Disclosure: Company secretary arrangements (who, how, reporting lines etc) and statement on effectiveness of those arrangements
Disclose: Arrangements for co secretary and effectiveness of those arrangements
The CEO appointment and role
CEO cannot be member of the remuneration, audit or nominations committees and only attend if invited and then only to contribute insights and information that the committees may want or need
CEO not to sit on rem com, audit com or nomination com
GB and CEO to agree on whether CEO also has other professional appointments - subject to time and requirements and opportunity for professional development - remember conflict of interest
CEO can have other appointments subject to agreement with GB and no conflict of interest
CEO to be accountable and report to GB
CEO reports to GB
CEO to be responsible for leading the implementation and execution of approved strategy, policy, operational planning and should be the link between management and the GB
CEO to implement strategy and policy and link between management and GB
GB to put succession planning fo CEO into place - both emergency and long-term
CEO succession planning
The GB should appoint the CEO
GB to appoint CEO
GB to evaluate CEO's performance annually against agreed performance measures and targets
GB to evaluate CEO performance annually
Disclosure for the CEO:
a. Notice period as per employment contract and contractual conditions relating to termination
b. Other professional commitments
c. Whether there is succession planning in place
Disclosure (in addition to the disclosure for all GB members):
a. notice period and termination info
b. other commitments
c. succession planning
evaluation of its own performance (which includes GB, sub-coms, members and chair) improvement in performance effectiveness
The best practicse are broken down into critical areas, and each area has best practices. The areas are:
The CEO appointment and role
Delegation
Professional corporate governance services to the GB