Corporate boards play a crucial role in governing and overseeing organisations by ensuring they remain aligned with strategic goals and shareholder interests, and comply with regulatory requirements. To manage their broad and diverse responsibilities effectively, boards delegate specific tasks to committees.

Among the most important committees are the audit committee, risk committee, nominations committee, and remuneration committee. These committees each focus on a distinct area of governance, ensuring that essential functions receive the attention and expertise they require. According to the Institute of Directors, each committee should have clear terms of reference that are reviewed by the board each year to ensure they remain relevant.

Independent Audit advises board committees should use their regular report to the main board to highlight the most important issues they have covered, the material judgements they have made and any big decisions taken. Doing so will ensure their reports are engaging and informative for those board members who don’t attend that committee.

This guide will explore the structure, roles, and responsibilities of each of these key board committees, highlighting how they contribute to overall corporate governance.

The role of the audit committee

The audit committee is a vital component of corporate governance. Its primary responsibility is to oversee the organisation’s financial reporting process, ensuring it’s accurate and transparent, and complies with regulatory requirements. The committee plays a critical role in safeguarding the integrity of financial statements, protecting against financial misreporting, and maintaining investor confidence.

The audit committee’s duties include:

• Overseeing financial reporting: Ensuring the financial statements are accurate and comply with relevant standards (e.g., International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP)).
• Monitoring the internal audit process: Assessing the effectiveness of internal audit procedures and ensuring they align with the organisation’s risk management strategy.
• Guarding against fraud: ensuring employees have the opportunity to blow the whistle on financial mismanagement and are able to report any improprieties.
• External audit oversight: Selecting, appointing, and liaising with external auditors. The committee ensures that external auditors remain independent, perform their work diligently, and report any irregularities directly to the board.
• Ensuring compliance: Monitoring the organisation’s compliance with laws, regulations, and internal policies related to financial matters.
• Reviewing internal controls: Assessing the adequacy and effectiveness of internal controls related to financial reporting.

Membership and accountability

The audit committee is typically composed of independent non-executive directors. Independence is an important criterion because it ensures objectivity and reduces the risk of conflicts of interest. At least one member of the committee is required to have recent and relevant financial experience to ensure the committee has the necessary expertise to scrutinise complex financial reports and audits.

The committee usually reports directly to the board, making recommendations based on its findings. In some cases, it also interacts closely with the risk committee, particularly on issues related to financial risk and internal controls.

The Audit Committee produces a report for the board after each committee meeting, summarising its key findings and recommendations. This report is often shared with shareholders in the organisation’s annual report to demonstrate transparency and accountability in financial oversight.

The role of the risk committee

The risk committee focuses on identifying, assessing, and managing risks that could impact the organisation. Its purpose is to ensure that the company is adequately prepared to handle both existing and emerging risks in line with the overall risk appetite set by the board. By managing these risks effectively, the committee helps the company to protect its assets, reputation, and long-term sustainability. The rules of the Prudential Regulation Authority and the Financial Conduct Authority require some UK banks and insurance firms to have a risk committee. For example, those banks and insurers that are listed on the FTSE100. You can read more here.

The risk committee’s responsibilities include:

• Risk identification: Identifying current and potential risks across the organisation, including financial, operational, legal, reputational, and environmental, social and governance (ESG) risks.
• Risk assessment: Evaluating the potential impact and likelihood of identified risks happening, prioritising them based on severity. For example, by creating a risk register.
• Risk mitigation: Developing strategies to mitigate or reduce the identified risks. This may involve introducing new controls, revising policies, or making strategic adjustments.
• Monitoring risk management frameworks: Ensuring the organisation has a robust risk management framework in place and that it is regularly updated to reflect changes to the risks the business faces, the environment it operates in, or its own strategy.
• Stress testing and scenario analysis: The committee may conduct or review stress testing and scenario analysis to anticipate how the organisation would cope with adverse events or extreme market conditions.

Membership and accountability

The risk committee typically includes directors experienced in risk management, legal, or compliance, as well as those with industry-specific expertise. While some organisations combine the audit committee and risk committee, separating them can enable more focused oversight of non-financial risks, such as cyber threats or ESG risks.

The risk committee often works closely with other committees, including the audit committee (for financial risk), the remuneration committee (for risks related to incentive structures), and the nominations committee (for risks associated with leadership and succession planning).

The risk committee regularly updates the board on the organisation’s exposure to risk and the action that’s being taken to manage it. The committee ensures the board is aware of significant risks that may affect strategic decisions and provides advice on how to align risk management with business strategy.

The role of the nominations committee

The nominations committee plays a pivotal role in ensuring that the board and executive leadership is drawn from a diverse talent pool that provides the organisation with the appropriate mix of skills, experience, and diversity of ethnicity, gender and socio-economic background. A balanced and cognitively diverse board will be well equipped to drive the organisation forward and will be able to respond to the challenges of the day in line with the expectations of its stakeholders. The nominations committee’s primary responsibility is to manage the recruitment, appointment, and evaluation of directors and key executives.

The nominations committee’s duties include:

• Succession planning: Ensuring there’s a clear and well-defined succession plan in place for the CEO, executive team, and board members.
• Board composition: Reviewing the structure, size, and composition of the board to ensure a diverse and balanced mix of skills and experience.
• Director recruitment: Leading the search for, and recommending, new directors for appointment, typically through a thorough vetting process.
• Evaluating board performance: Conducting regular assessments of the board’s performance as a collective and of the individual directors to ensure they are effective and to address any areas of concern.
• Diversity and inclusion: Promoting diversity of board members in terms of gender, ethnicity, skills, and socio-economic background, to ensure the board reflects a wide range of perspectives, which can contribute to more effective decision making. To foster inclusion, the chair should ensure that all directors are given the opportunity to speak during board meetings, in particular by inviting the views of those who are more hesitant to offer them. This is an important part of ensuring constructive challenge during board meetings by making all directors feel their views are sought and valued.

Membership and accountability

The nominations committee is usually composed of non-executive directors, with a strong emphasis on independence. This independence ensures that recommendations for board appointments and executive hires are made impartially, without conflicts of interest. In some cases, the CEO may participate in discussions related to senior executive succession planning, but not in decisions that directly involve their own succession.

The committee typically works closely with other board committees, particularly the remuneration committee, to ensure that executives and board directors are appropriately compensated and incentivised.

The nominations committee reports its findings and recommendations to the board, particularly on matters related to director appointments and board composition. It may also present its findings to shareholders during the annual general meeting (AGM), ensuring transparency in recruitment and succession processes.

The role of the remuneration committee

The remuneration committee is responsible for overseeing the compensation strategy for the board, executive team, and senior management. Its goal is to ensure that compensation structures are fair, competitive, and aligned with the company’s strategic objectives and its long-term performance goals.

The main responsibilities of the remuneration committee include:

• Setting executive pay: Establishing and reviewing the remuneration packages of the CEO and senior executives, including salary, bonuses, stock options, and long-term incentives.
• Aligning pay with performance: Ensuring that remuneration is linked to both short-term and long-term performance and incentivises executives to achieve strategic goals while managing risks.
• Executive contracts: Reviewing executive employment contracts, severance terms, and pension arrangements to ensure they are competitive and aligned with shareholder interests.
• Benchmarking compensation: Comparing the organisation’s pay structures with industry peers to ensure competitiveness and to avoid excessive pay packages.
• Engaging with shareholders: Engaging with shareholders to explain why the chosen remuneration strategy is right for the business, including how it aligns with strategy and promotes long-term growth. Addressing any concerns shareholders may have about executive pay with the aim of resolving these before the AGM. Presenting the remuneration policy for approval during the AGM.

Membership and accountability

The remuneration committee is typically composed of independent non-executive directors to ensure that decisions about executive compensation are made without conflicts of interest. To maintain objectivity, executives are generally not members of this committee.

The committee may engage external consultants to provide independent advice on compensation trends, benchmarks, and best practices.

The remuneration committee presents a remuneration report to the board, which summarises its recommendations on pay and incentives. this report is often included in the company’s annual report and presented to shareholders during the AGM to ensure transparency in executive compensation practices.

Emerging committees

Some boards are choosing to establish committees that focus on the unique challenges the current geopolitical landscape poses to businesses and their boards. This could be a committee dedicated to sustainability, ESG, diversity, equity and inclusion, or technology, which could cover cyber risk and artificial intelligence. The need for a dedicated committee on any of these topics may depend on the type of organisation or the sector it operates in.

The Chartered Governance Institute UK & Ireland has published Terms of Reference for the Sustainability or ESG committee, which outlines good practice. It has also published a thought leadership paper on sustainability committees.

In conclusion, board committees are integral to ensuring that corporate boards fulfil their fiduciary duties effectively and efficiently. Each committee—whether focused on audit, risk, nominations, or remuneration—plays a specialised role in supporting the board’s overall governance framework.

By delegating specific responsibilities to these committees, boards can manage complex issues in greater depth, allowing for more informed and focused decision-making. While each committee operates independently, their collaborative efforts contribute to the overall success and sustainability of the organisation.

Further resources

The Chartered Governance Institute UK & Ireland (CGI) offers terms of reference for the committees covered in this guide, which can be accessed via its resource centre.
What are board committees?  An article from the Corporate Governance Institute
Tips on good practice for committees reporting to the main board from Independent Audit
Internal Audit Code of Practice 2024, from the Institute of Internal Auditors. Sets out fundamental principles for running a strong and effective internal audit function.
The Hidden Truth: Diversity on boards across UK listed firms 2024. A report by WB Directors that assesses how far women are reaching the most influential board roles of chair, senior independent director, chief executive officer and chief financial officer.