Establishing A Corporate Governance Structure: Standing Committees of the Board

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Whether an organization already has a board in place or is in the process of designing one, establishing a high-functioning corporate board structure is a foundational element of sound governance and a critical component of the IPO readiness process for companies seeking to list on a public exchange. The following highlights key considerations in forming the board’s commonly recognized standing committees1, which are generally permanent committees established with defined areas of oversight. For public companies, these typically include the Audit (and Risk), Compensation (and Human Capital), and Nominating and Governance committees.2

Audit

An independent committee of the board of directors to assist in the board’s oversight of the integrity of the company's financial statements; compliance with legal and regulatory requirements; appointment, compensation and performance of the independent auditor; performance of the company's independent internal audit function.

Compensation 

An independent committee of the board of directors that assists in the board’s oversight of the compensation philosophy and the recommendation for board approval of CEO, executive officers, and board director compensation in alignment with investor expectations and strategic attraction, development, and retention of talent.

Nomination & Governance

An independent committee of the board of directors that assists the board with establishing general governance oversight, the qualifications, identification, nomination of director candidates and the evaluation and refreshment of board members. 

This practice aid summarizes general information drawn from SEC rules, applicable stock exchange listing standards, and other governance-related rules, regulations, and resources. It is intended for informational purposes only and does not constitute legal, regulatory, or governance advice. Companies should consult their specific listing exchange standards, governing documents, legal counsel, and other appropriate resources when evaluating committee requirements, responsibilities, and practices.

1 Listing exchanges require all companies to maintain an audit committee and expect that companies will also maintain a compensation committee and a nomination and governance committee.  
2 More and more modern-day companies are choosing to expand traditional responsibilities and nomenclature of the standing committees to address oversight of the evolving emerging risk landscape.

Important: This publication provides illustrative guidance, not legal advice and not a one-size-fits-all charter. Any audit committee charter should be tailored to your organization’s facts and circumstances, reviewed at least annually, and approved by the board. This practice aid will continue to evolve over time as rulemaking, best practices, and resources continue to develop.

Disclaimer: This publication has been prepared by BDO and is intended to provide general information only. It is not intended to be definitive, all-inclusive, or a substitute for professional advice or the reading of relevant rules, standards, and regulations. Users are encouraged to consult the applicable authoritative guidance and seek professional advice as appropriate. BDO shall not be held liable for any loss or damages arising from the use of, reliance on, or reference to this publication.


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