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Much ado about nothing? Why directors should think about committee governance

While committees should always be subject to the authority and supervision of the board of directors, it would be counterproductive for the board to micromanage a committee’s affairs. Directors should consider carefully issues surrounding committee governance.

committee governanceMost not-for-profit organisations (NPO) establish one or more committees to perform various roles. From vetting and nominating candidates to serve on the board of directors, to organising fundraisers and events, to reviewing the organisation’s finances and coordinating with its auditors, committees can play an important role in the proper management and governance of the NPO.

Typically, the NPO’s by-laws provide that the board of directors may, from time to time as it deems necessary, appoint any committee or other advisory body for such purposes and with such powers and composition as the board sees fit. In some cases, the by-laws will formally establish specific committees (e.g. nominating, audit and finance, etc.) and set their duties in general terms. Such by-law provisions will also generally provide that any committee may formulate its own rules on its internal procedure and on how it will execute its mandate, subject always to any policies or directions the board may specify. With respect to composition, while some committees may be composed in whole or in part of directors or officers, in many cases committees will be entirely composed of individuals who are neither directors, nor officers of the NPO.

While committees should always be subject to the authority and supervision of the board of directors, it would be counterproductive for the board to micromanage a committee’s affairs. On the other hand, the board has an important role in ensuring each committee executes its duties not simply in conformity with the committee’s stated duties, but also more generally in accordance with the organisation’s purpose and in a manner that is coherent with the board’s activities and vision. Directors, therefore, cannot simply ignore committee activities or give committee members complete free reign in the performance of their duties.

These issues require directors to consider carefully issues surrounding committee governance.

The following list sets out certain elements board members can consider in this respect. While some of these elements could be formally enshrined in the NPOs by-laws, for the most part they can be set out in policies of the board by way of resolution of the directors. This approach allows for greater flexibility to make changes as and when required without having to proceed with a by-law amendment submitted for the approval of the members.

  1. Consider what committees are needed and have a clear understanding as to why they are needed.
  2. Have a clear vision for what each committee’s role is and ensure each committee member understands this role. Establish a mission statement for each committee and have the committee members produce a plan for how they will accomplish this mission.
  3. For those committees which are not already composed in whole or in part of directors or officers, consider having a board member or officer attend meetings periodically as an observer.
  4. Encourage regular monthly reporting by the committee to the board of directors on the committee’s activities. A written report should be provided, and at least one committee member should attend the board meeting where the report is discussed to enable the directors to ask questions.
  5. Periodically re-visit committee structure – at least once a year – to determine whether any changes should be made to the types of committees, their composition, their role, etc,

By Lampros Stougiannos, Partner, Miller Thomson

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In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.
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