Types of Committees¶
In the corporate governance framework, various committees play crucial roles in ensuring the efficient and effective management of a company. These committees are established to oversee specific areas of the company's operations, such as financial reporting, nominations, remuneration, stakeholder relationships, and social responsibility. Their formation is often mandated by law or corporate governance codes, and their composition, roles, and responsibilities are defined to ensure transparency, accountability, and due diligence in corporate affairs.
Audit Committee¶
The Audit Committee is a critical component of corporate governance, primarily responsible for overseeing the financial reporting process, the selection of the independent auditor, and the receipt of audit results, both internal and external. This committee aids the board of directors in fulfilling its governance and oversight responsibilities regarding an entity’s financial reporting, internal control system, risk management, and internal and external audit functions. In India, as per Section 177(1) of the Companies Act 2013, every listed company and certain other classes of companies are required to constitute an Audit Committee. The committee must comprise a minimum of three members, the majority of whom should be independent directors, with the chairperson being an independent director as well. The chairperson of the Audit Committee should possess sufficient knowledge to understand financial statements.
Nomination and Remuneration Committee¶
The Nomination and Remuneration Committee focuses on identifying individuals qualified to become directors or to be appointed to senior management positions and recommends their appointment and/or removal to the board. It also evaluates the performance of every director and ensures the establishment of induction programs for new directors and ongoing education for existing ones. This committee formulates criteria for determining the qualifications, positive attributes, and independence of a director and recommends to the board a policy relating to the remuneration for directors, key managerial personnel, and other employees. The Companies Act 2013 mandates the formation of this committee for every listed company and certain other classes of companies, with a composition of at least three non-executive directors, the majority of whom should be independent.
Stakeholders Relationship Committee¶
The Stakeholders Relationship Committee is established to specifically address and redress grievances of shareholders, debenture holders, and other security holders. This committee oversees the process of resolving complaints related to transfer of shares, non-receipt of balance sheets, declared dividends, etc. As per Section 178 of the Companies Act 2013, companies that have a large number of shareholders or debenture holders are required to constitute this committee. The committee should comprise a minimum of three directors, with at least one being an independent director, and the chairperson should be a non-executive director.
Corporate Social Responsibility (CSR) Committee¶
The CSR Committee is tasked with suggesting, devising, and monitoring the Corporate Social Responsibility policies of the company according to the Companies Act 2013 and the CSR Policy Rules 2014. This includes recommending the amount of expenditure to be incurred on CSR activities and ensuring the implementation of CSR projects or programs. Companies having a net worth of Rs.500 crores or more, or a turnover of Rs.1000 crores or more, or a net profit of Rs.5 crores or more during any financial year are required to constitute a CSR Committee. The committee should include at least three directors, with at least one being an independent director, for listed companies.
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