Good governance entails having a board that is informed and understand the business well. When it comes to Board composition, having members with diverse skills and experiences is key. A board of a hospital for example, should not just have only medical doctors as Board Members. That would be myopic, as their thinking may not give a clear bird’s view of the entire business operations. Having members who are lawyers, accountants, engineers, could make a big difference.
Now that you have a Board of directors, do you need Board committees? You may or not, as explained below.
- The role of Board Committees is to reduce on the Board’s work load, by reviewing key details (Board papers and other background information) before being brought to the full Board for a decision.
- The number of Board Committees depend on the size of the business, regulation and the nature of the industry that particular organization operates. A financial institution for example, has to meet the requirements of the applicable law − in the case of Uganda, the Financial Institutions Act (FIA), 2004 Laws of Uganda. This Act may provide for the establishment of the Board and nature and role of committees to be put in place. For any business to succeed it must comply and it’s the Board’s business to ensure there is total compliance.
Nevertheless, laws provide minimum compliance because they exist to protect interests of many stakeholders. The FIA for example will ensure that only financial institutions that are sound and robust which meet the minimum requirements are in place. Once the minimums are in place as stipulated in the law, the organization may consider other key committees depending on the business needs.
In setting up the committees, the Board must agree whether they have time to evaluate all Board papers about the business at the main Board level? Ideally if the Board has time to evaluate and there is no law requiring it to set up committees, the Board may not need any committee. In the Financial Institutions Act, 2004 Laws of Uganda, for example, Section 59 (10) provides for the Audit Committee of the Board to be constituted among the Board members. In that case, the Audit Committee must be in place for all banks.
However, if the Board thinks the organization is huge. Things coming up are very many – lots of documents to review at the meeting, the need for special committees to help reduce the work load of the Board by reviewing those other details before they are tabled at the full Board is key.
At most, the Board needs the Audit & Risk Management Committee, Strategy and Sustainability Committee (to handle strategy, HR issues) and ICT & Finance Committee (since ICT is key business driver, Board needs special committee for this and for finance). These are the top three committees of the Board.
Mustapha B Mugisa, All rights reserved. 2015.