Roles and responsibilities

Strategy

Leading boards are working with management teams to oversee a strategy formulation process that drives long-term value. They must help companies define both financial and non-financial value drivers as part of a dynamic strategy-setting process that considers the needs of investors, employees, consumers, society and other key stakeholders.

Talent

Historically, many boards limited their talent oversight responsibilities to C-suite succession planning and executive compensation. Today, leading boards recognize human capital as a key driver of long-term value and have expanded their oversight to include topics like culture, diversity, equity and inclusion, health and well-being, and workforce transformation.

Risk

Boards and audit committees are revisiting risk management practices to enable enterprise resiliency and agility to better respond to the shifting risk landscape. As organizations look to enhance risk management, some key areas of focus include improved risk identification, more rigorous scenario planning, simulations, stress testing over more variables and extremes and better leveraging of technology and digital experience.

Audit committee roles and responsibilities

The audit committee’s primary purpose is to assist the board in overseeing:

• The integrity and audit of the company’s financial statements and the integrity and quality of the company’s accounting and financial reporting processes and systems of internal controls
• Processes established by management to ensure the company’s compliance with legal and regulatory requirements
• The independent auditor’s qualifications, performance and independence
• The performance of the company’s internal auditors and the internal audit function

The audit committee generally has other key roles and responsibilities, including:

• Reviewing the company’s risk profile and management’s processes for managing risk and preventing and detecting fraud
• Actively engaging with management on their implementation of new GAAP standards and related internal control processes
• Engaging regularly in the review and use of non-GAAP financial measures and other metrics designed to measure or evaluate company performance
• Pre-approving any permissible non-audit services provided by the independent auditor

Key trends and developments

The audit committee’s agenda continues to grow. Some recent trends include:

• Audit committee engagement with the Public Company Accounting Oversight Board on matters such as audit quality, new auditing and accounting standards, technology and innovation
• Oversight of development and disclosure of KPIs and other nonfinancial metrics, and related disclosure controls and procedures, around topics of increasing relevance to corporate sustainability and long-term value, including ESG factors such as climate, human capital management and culture (among many other matters)
• Increasing coordination with the full board and other committees to strengthen and coordinate oversight of strategy and risk
• Expanding audit-related disclosures in the proxy statement to provide more insight into the committee’s roles, responsibilities and critical areas of focus
• Performing a more rigorous evaluation of the committee’s composition (in particular, independence and qualifications), practices and effectiveness, and its individual members, including the chair

Compensation committee roles and responsibilities

The compensation committee’s primary purpose is to:

• Review and approve the corporate and individual goals and objectives relevant to CEO compensation, evaluate the CEO’s performance considering those goals and objectives and determine and approve the form and amount of the CEO’s compensation based on this evaluation
• Review and approve the corporate and individual goals and objectives relevant to other executive officer compensation and make recommendations to the board about the form and amount of their individual compensation
• Assess and make recommendations to the board about the scope and effectiveness of broad-based corporate incentive-compensation and equity-based plans and other compensation practices

The compensation committee generally has other key roles and responsibilities, often including:

• Review and approve the company’s compensation philosophy and strategies, such as the philosophy of “pay for performance” and the strategy of identifying the right “performance” measure(s)
• Review, approve and appropriately update the selection (including by any compensation consultant engaged by the committee) of corporate peers used to benchmark executive officer compensation
• Review and oversee management’s executive management succession planning process
• Review policies and practices for employee compensation as they relate to risk management, including whether and how any compensation practices incentivize risk
• Consider the results of the most recent “say-on-pay” votes

Key trends and developments

The compensation committee’s agenda is growing in important ways relevant to corporate long-term value and reputation. Some recent trends include:

• Reviewing the company’s human capital strategies, initiatives and practices (including talent recruitment, engagement and retention; corporate culture; diversity, equity and inclusion) and the strategic effectiveness of the company’s overall workforce “life cycle” (from recruitment to offboarding)
• Overseeing stakeholder engagement on compensation matters, including CEO pay ratio, pay equity and employee benefits
• Expanding performance criteria supporting “pay for performance” to include material environmental, social and corporate governance (ESG) factors, including those that relate to core climate matters, employee health, well-being and engagement and diversity, equity and inclusion throughout the talent pipeline
• Collaborating with the audit committee on overseeing the development of KPIs and other nonfinancial metrics relevant to new performance criteria
• Performing a more rigorous evaluation of the committee’s composition (in particular, information practices relating to emerging human capital and compensation-related matters), practices and effectiveness of its individual members, including the chair

Nominating and governance committee roles and responsibilities

The nominating and governance committee’s primary purpose is to assist the board in overseeing:

• Identification of individuals qualified to become board members consistent with qualification criteria that the committee develops and the board approves
• Selection of director nominees for the upcoming annual meeting of directors
• Development and regular review of corporate governance guidelines, board committee charters, company articles of incorporation and company bylaws
• Self-evaluation of the board and its committees, including regularly reviewing the effectiveness and results of the self-evaluation process

The nominating and governance committee generally has other key roles and responsibilities, often including:

• Reviewing the composition and structure of board committees (including any ad hoc committees) and make recommendations to the board on any changes
• Reviewing and recommending to the board the form and amount of director compensation
• Overseeing new director orientation and continuing education programming for all directors
• Monitoring the independence, outside activities and other qualifications of directors, including through the directors and officers questionnaire process
• Making recommendations to the board about waivers of any provision under the company’s code of conduct and ethics or other governance policies and practices extended to any director or officer
• Reviewing and approving related-party transactions and addressing other conflicts of interest issues

Key trends and developments

The nominating and governance committee’s mandate is rapidly expanding in important ways relevant to board effectiveness, composition and structure. Some recent trends include:

• Developing and maintaining a reasonably detailed board skills matrix to monitor board composition and verify that it meets the company’s evolving strategic and risk oversight needs and is in line stakeholder expectations
• Keeping an evergreen director search program to maintain a diverse pool of qualified candidates to meet succession needs, whether planned or unplanned, and setting the tone that director renominations will not be automatic but rather based on the company and board’s needs and director performance
• Casting a wider and deeper net to identify diverse talent for the board, including through use of the Rooney Rule, i.e., exploring high-quality candidates without prior CEO and CFO experience and coaching current directors to expand their networks and engagement to identify diverse talent
• Adding rigor to the self-evaluation process, including promoting individual director self-evaluation and real-time evaluation (leading a constructive and positive “see something, say something” culture) outside the formal evaluation process
• Engaging with management on company culture, ethics and values, including on management’s processes to maintain a healthy culture aligned with strategy and ensure compliance with the company’s governance policies and procedures
• Overseeing, with the board and other committees, the company’s strategy and policies relative to material environmental, social and corporate governance (ESG) matters
• Reviewing and approving policies, procedures and reporting on corporate (and director and officer) political strategy, activities and lobbying expenses