Board Committees and Delegation of Authority
What the exam tests
You must know why committees exist, who may sit on them, how they are constituted, and the line between delegation and abdication.
Committee architecture
The NCCG 2018 expects governance, nomination, audit, risk and remuneration committees, each with written terms of reference, defined membership, a chair who is not the board chairman, and a duty to report to the full board.
The statutory audit committee in a Nigerian public company is different from a board committee: CAMA 2020 requires it to include shareholder representatives alongside non-executive directors, gives it responsibility for reviewing the financial statements, and gives it a role in the appointment, remuneration and independence of the external auditor. Do not describe it as a mere sub-committee of the board.
Delegation
- The board may delegate to committees, the CEO and management, but it cannot delegate its accountability. Delegation must be in writing, supported by a schedule of reserved matters and authority limits (financial, contractual, headcount).
- Delegated decisions must be reported back, minuted and monitored; a committee acting outside its terms acts without authority.
- Delegation is judged by the reasonable director test: you must monitor what you delegate.
Worked example
A risk committee approves a large credit facility. The delegation matrix caps it well below that amount and reserves larger exposures to the full board. The approval is invalid and the directors who voted are exposed for breach of the constitution and their duty of care. Remedy: full board review with complete information before any ratification, and a minute recording why the limit was exceeded.
Traps
- Conflating the statutory audit committee with the board's audit or risk committee.
- Believing delegation transfers liability.
- Committees setting policy the board has reserved to itself.
- No terms of reference and no reporting line back to the board.