The ICSA has published new guidance on terms of reference for audit, remuneration, nomination, risk and executive committees, as well as new guidance on matters reserved for the board. The new guidance notes have been revised to reflect the updated editions of the UK Corporate Governance Code (“Code”) and FRC Guidance on Audit Committees published in September 2012 and which apply to all companies with a premium listing with reporting periods beginning on or after 1 October 2012. The new guidance notes include model terms of reference which outline the roles and responsibilities of each committee. The guidance note on matters reserved to the board is intended to aid directors and company secretaries in drawing up a schedule of matters which should only be decided by the board of directors as a whole. Some of the new provisions of the guidance notes include:

Terms of reference for audit committees

  • A recommendation that at least one member of the committee should hold a professional qualification from one of the professional accountancy bodies.
  • A requirement that the finance director is invited to attend meetings of the committee.
  • Limiting the extension of appointments to the committee to two further periods of 3 years (following an initial period of appointment of up to 3 years).
  • An obligation on the company secretary to ensure that the committee receives relevant information and papers in a timely manner.
  • A requirement for the committee chairman to maintain a dialogue with key individuals involved in the company's governance.
  • The committee chairman will decide whether it is appropriate to circulate copies of the minutes of committee meetings to all members of the board.
  • Expanding the duties of the committee to include:
  • advising the board if it is not satisfied with any aspect of the company’s proposed financial reporting;
  • reviewing and advising the board as to the contents of the annual report and accounts, in particular, whether it is fair and balanced and provides the information necessary for shareholders to assess the company’s performance, business model and strategy;
  • ensuring the internal auditor has direct access to the board and committee chairmen;
  • ensuring that at least once every 10 years the audit services contract is put out to tender.
     
  • An obligation to evaluate the risks to the quality and effectiveness of the financial reporting process.
  • Expanding the reporting responsibilities of the committee, including a formal report to the board on how it has discharged its responsibilities, and a requirement to cover certain issues in the report on its activities prepared for the purposes of the company's annual report.

Terms of reference for remuneration committees

  • Limiting the extension of appointments to the committee to two further periods of 3 years (following an initial period of appointment of up to 3 years).
  • An obligation on the company secretary to ensure that the committee receives relevant information and papers in a timely manner.
  • Amending the duties of the committee to include:
  • responsibility for setting the remuneration policy for all executive directors and the company’s chairman;
  • recommending and monitoring the level and structure of remuneration for senior management;
  • clarifying specific objectives of remuneration policies.
     
  • Expanding the reporting responsibilities of the committee to include:
  • ensuring that the provisions regarding disclosure of information as set out in the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Code are fulfilled;
  • producing a report of the company’s remuneration policy and practices for inclusion in the company’s annual report and ensuring that it is put to shareholders for approval at the AGM;
  • ensuring that the company maintains contact as required with its principal shareholders about remuneration.
     
  • A requirement for the committee to consider guidelines published by the Association of British Insurers and the National Association of Pension Funds.

Terms of reference for nomination committees

New requirements relating to the report prepared by the committee for the company's annual report:

  • Identification of any external search agency and whether it has any connection with the company.
  • A statement of the board's policy on diversity.

Terms of reference for risk committees

  • A recommendation that the committee should consider the recommendations in the final report of the Kay Review of UK Equity Markets and Long-Term Decision Making published in July 2012, in particular those relating to wider shareholder consultation.
  • A recommendation that the committee consider the findings and recommendations of the Financial Stability Board in their Periodic Peer Review Report on Risk Governance published in February 2013.
  • The company's chief risk officer (CRO) should attend all meetings of the committee.
  • A requirement to retain copies of the minutes of the committee's meetings.
  • If there is an overlap in the duties of the audit and risk committees, a recommendation that the board should err on the side of overlapping duties on critical questions.
  • The duties of the committee should include ensuring that the CRO has unfettered direct access to the chairman of the board and the committee.
  • A requirement that the directors’ report in the annual report and accounts should set out risk management objectives and policies including in relation to financial instruments.
  • An obligation for the committee to arrange periodic reviews of its own performance.

Terms of reference for executive committees

  • Changes to the layout and format of the model terms of reference for executive committees.
  • An obligation for the committee to arrange periodic reviews of its own performance.  

Matters reserved for the board

There are some additional items in the list of matters reserved for the board:

  • Approval of material unbudgeted capital or operating expenditures (outside pre-determined tolerances).
  • Approving the company/group’s risk appetite statements.
  • Approving procedures for the detection of fraud and the prevention of bribery.
  • Overseeing the execution and delivery of major capital projects.
  • Ensuring a satisfactory dialogue with shareholders based on the mutual understanding of objectives.
  • Establishing board committees and approving their terms of reference and material changes to them.
  • Authorising conflicts of interest where permitted by the company’s articles of association.
  • Approval of policies on bribery prevention, whistleblowing and human resources.

Any decision likely to have a material impact on the company or group from any perspective, including, but not limited to, financial, operational, strategic or reputational.