7.2.4.3 Board committees

The UKCGC mentions the nomination, audit and remuneration committees within the board. Section B.2 about the appointments of the board discusses in code provision B.2.1 that a nomination committee should be in place with a majority of the members being independent NEDs. The chairman of the board or an independent NED should chair the nomination committee. However, the chairman is not allowed to chair the nomination committee when it is dealing with the succession of the current chairman.

An audit committee needs to be established as well, according to section C.3. The main principle of this section describes that the board should establish formal and transparent arrangements for how they should apply the corporate reporting, risk management and internal control principles. In addition, an appropriate relationship with the auditor should also be maintained. In order to accomplish this main principle, code provision C.3.1 requires the establishment of an audit committee of at least three independent NEDs. For smaller companies, an audit committee of two independent NEDs is sufficient. Only in these smaller companies, the chairman of the board is allowed to be part of the audit committee if he was considered to be independent on appointment as chairman. However, the chairman of the board may not chair the audit committee.

The remuneration committee is the third mandatory board committee, according to section D.2 of the UKCGC. This section states that there should be a formal and transparent procedure for the remuneration policy. In this respect, the supporting principle mentions the remuneration committee as the instrument to accomplish this main principle. Code provision D.2.1 requires the establishment of a remuneration committee, which consists of at least three independent NEDs. For smaller companies, a remuneration committee of two independent NEDs is sufficient. The chairman of the board is allowed to be a member of the remuneration committee, but not the chair of the committee, and only if he was considered to be independent on appointment as chairman.

Table 7-4: Number of board committees and their meetings of the 150 largest UK-listed FTSE companies in 2010, calculated using data from Spencer Stuart (2011).

The largest 150 FTSE companies in the United Kingdom have established an audit committee, remuneration committee and nomination committee. One company – Hiscox – has combined the remuneration and nomination committees into one board committee. Details about these board committees are given in Table 7-4. Companies have on average 3.6 board committees. The number of board committee meetings is a little dispersed. On average, the audit committee has 4.9 meetings per year, but this varies from 3 to 17. The number of remuneration committee meetings varies between 1 and 13, whereas the number of nomination committee meetings varies between 0 and 10.