Governance in Practice: Boards, Committees and Accountability
The board's role
Boards set strategy and oversee management, appoint and assess the CEO, oversee risk and financial reporting integrity, approve remuneration, ensure compliance and shape ethical culture. Independence turns on the absence of material relationships - a former executive, a major adviser or a substantial shareholder is not independent. The ASX Corporate Governance Council's Principles and Recommendations are applied on an "if not, why not" basis: a listed entity must report against each recommendation and explain any departure (ASX Listing Rule 4.10.3). They are not law, but non-compliance invites market and ASIC scrutiny. Consistent with the recommendations, a majority of directors should be independent and the chair should be independent and not the CEO.
Committees
The audit committee is the classic exam target: at least three members, all non-executive, a majority independent, chaired by an independent director who is not the board chair. It oversees external audit appointment and independence, internal audit, financial reporting and risk/control frameworks. Internal audit typically reports functionally to the audit committee and administratively to management. Remuneration, nomination and risk committees perform analogous oversight roles.
Accountability mechanisms
Directors' duties (care and diligence, good faith, proper purpose, conflicts, no insolvent trading) under the Corporations Act, the business judgement rule, continuous disclosure, the AGM, external audit, and whistleblower protections together form the accountability chain, alongside ASIC enforcement and shareholder activism.
Traps
Treating recommendations as mandatory law; placing an executive director on the audit committee; allowing the board chair to also chair the audit committee; confusing internal and external audit roles.
Worked example
A board of six has three independent directors; the audit committee comprises the CEO, the CFO and one independent director, chaired by the board chair. Failures: audit committee must be all non-executive and majority independent, and its chair must be independent and not the board chair. The majority-independent test is technically met, but the committee is wholly defective.
Rule of thumb: check committee composition member by member before assessing anything else.