Corporate committees play a crucial role in enhancing governance efficiency and organizing internal operations. With the increasing complexity of business activities and regulatory challenges, the need for specialized committees has become essential to ensure compliance and achieve the company’s strategic goals. These committees consist of members with diverse expertise, selected from the board of directors or externally, to oversee specific issues related to the company’s direction and operations.

The types of corporate committees vary according to the company’s activities and objectives. Among the most notable are the Audit Committee, which is dedicated to reviewing financial systems and ensuring the accuracy and integrity of financial reports. The Compensation and Nominations Committee plays a critical role in identifying and selecting qualified candidates while establishing equitable compensation policies. Additionally, the Risk Committee is tasked with analyzing, monitoring, and managing potential risks that could impact the company’s operations or objectives.

The significance of these committees lies in enhancing the company's performance and building trust with investors and stakeholders. By defining clear roles and responsibilities, these committees contribute to improving the company's flexibility and adaptability to changes, making them a vital component for the success of organizations in an ever-changing business environment.

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What Role Does the Board of Directors Play in Determining the Types of Committees Needed by the Company?

TheCorporate Governance Regulationsstate that one of the fundamental duties of a company’s board of directors is to establish specialized committees under its authority. This is achieved through resolutions that define the committees’ terms, powers, and responsibilities, as well as the oversight mechanisms the board will employ. The resolution must also specify the committee members, their roles, rights, and obligations, while emphasizing the importance of regularly evaluating the committees’ performance and the contributions of their members.

The Board of Directors establishes specialized committees tailored to the company’s specific needs and circumstances, ensuring they can carry out their duties effectively and efficiently. While each committee is accountable to the Board for its actions, the Board retains ultimate responsibility for all delegated powers and decisions. Committees are tasked with examining matters within their designated scope or those referred to them by the Board, providing recommendations for necessary Board decisions, or, where authority has been delegated, making decisions independently.

Additionally, committees are entitled to seek experts and specialists assistance, either from within the company or externally, within the limits of their authority. Such assistance shall be documented in the committee’s meeting minutes, including the expert’s name and their relationship with the company or the executive management.

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What Are the Most Important Types of Corporate Committees?

Specialized committees are among the most effective tools for enhancing corporate governance, serving as vital support structures for the Board of Directors in overseeing and managing the company’s essential operations. Here are the most important of these committees:

The Audit Committee

The Audit Committee is established by a resolution of the company's Board of Directors and may include members who are either shareholders or non-shareholders, as long as none are executive directors of the Board. The committee must comprise no fewer than three and no more than five members, with at least one member possessing expertise in financial and accounting matters.
The Audit Committee plays a critical role in overseeing the company’s operations, ensuring the accuracy and integrity of financial reports and statements, and reviewing internal control systems. Its specific responsibilities include:

• Reviewing the company’s preliminary and annual financial statements before presenting them to the Board of Directors, providing opinions, and making recommendations to ensure their accuracy, fairness, and transparency.
• Providing a technical opinion, upon the request of the Board of Directors, on whether the Board's reports and financial statements are fair and balanced and contain the information necessary to enable shareholders and investors to assess the company's financial position, performance, business model, and strategy.
• Reviewing significant or unusual matters that may be included in the financial reports.
• Verifying issues raised by the Chief Financial Officer (CFO) or their designee, the company's compliance officer, or the external auditor.
• Verifying accounting estimates related to material issues included in the financial reports.
• Studying the company’s adopted accounting policies and providing opinions and recommendations to the Board of Directors.
• Studying and evaluating the company’s internal controls, financial control systems, and risk management practices.
• Studying internal audit reports and following up on the implementation of corrective actions for the issues raised in those reports.
• Monitoring the performance and activities of the internal auditor and internal audit management to ensure the availability and effectiveness of necessary resources in performing their duties and tasks.
• Recommending to the Board of Directors the appointment of the Director of the Internal Audit Unit or Department, or the Internal Auditor, and providing recommendations regarding their compensation.
• Recommending to the Board of Directors the nomination, dismissal, fee determination, and performance evaluation of external auditors, ensuring their independence and reviewing the scope of their work and contractual terms.
• Verifying the independence, objectivity and fairness of the auditor, and the effectiveness of the audit work, taking into account the relevant rules and standards.
• Reviewing the external auditor's plan and activities to ensure they do not undertake technical, administrative, or consulting work beyond the scope of the audit, and providing the committee's feedback on this matter.
• Responding to the company's auditors inquiries.
• Reviewing the auditor's report and observations on the financial statements and monitoring the actions taken in response.
• Reviewing the results of regulatory authority reports and verifying that the company has implemented the necessary corrective actions.
• Verifying the company’s compliance with applicable laws, regulations, policies, and instructions.
• Reviewing proposed contracts and transactions with related parties and providing recommendations to the Board of Directors.
• Escalate any matters requiring action to the Board of Directors, accompanied by recommendations on the appropriate measures to be taken.

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Remuneration Committee

The Remuneration Committee is established by a resolution of the company's Board of Directors and shall consist of non-executive board members, including at least one independent member. The company’s General Assembly, upon the recommendation of the Board of Directors, issues the regulations governing the Remuneration Committee’s operations.The committee is tasked with the following responsibilities:

• Developing a clear remuneration policy for Board members, sub-committees, and executive management, and submitting it to the Board of Directors for review and subsequent approval by the General Assembly. The policy shall consider performance-related criteria, ensure proper disclosure, and verify its implementation.
• Clarifying the relationship between the granted remuneration and the approved remuneration policy, highlighting any deviations from the policy.
• Conducting periodic reviews of the remuneration policy and evaluating its effectiveness in achieving the intended objectives.
• Recommending to the Board of Directors the remuneration for board members, its sub-committees, and the company’s senior executives in accordance with the approved policy.

Nomination Committee

The Nomination Committee is formed by a resolution of the company's Board of Directors and shall consist of non-executive board members, including at least one independent member. The company's General Assembly, upon the recommendation of the Board of Directors, issues the regulations governing the operations of the Nomination Committee.The committee is responsible for the following tasks:

• Developing clear policies and criteria for membership in the Board of Directors and Executive Management.
• Recommending to the Board of Directors the nomination and re-nomination of members in accordance with approved policies and criteria,ensuring that no person who has been previously convicted of a crime involving moral turpitude is nominated.
• Creating a comprehensive description of the skills and qualifications required for membership in the Board of Directors and executive management positions.
• Determining the amount of time a member should dedicate to fulfilling their responsibilities on the Board of Directors.
• Conducting an annual assessment of the skills and experiences necessary for Board membership and executive management roles.
• Reviewing the structure of the Board of Directors and Executive Management and providing recommendations for potential improvements.
• Annually verifying the independence of independent members and ensuring there are no conflicts of interest, especially if a member serves on the board of another company.
• Drafting job descriptions for executive, non-executive, independent members, and senior executives.
• Establishing procedures to address vacancies in the positions of Board members or senior executives.
• Identifying the strengths and weaknesses of the Board of Directors and proposing appropriate solutions to address them in alignment with the company's best interests.

- Risk Management Committee

The Risk Management Committee is established by a decision of the company's board of directors. Its chairman and a majority of its members shall be non-executive directors. Members should possess a suitable level of knowledge in risk management and finance. The Committee's responsibilities include:

• Developing a comprehensive risk management strategy and policies tailored to the company's specific nature and size, ensuring their implementation, review, and update based on internal and external factors that may impact the company.
• Determining the acceptable level of risk that the company may face and ensuring that it is not exceeded.
• Assessing the company's ability to continue as a going concern and identifying risks that could threaten its viability within the next twelve months.
• Overseeing the company's risk management system and evaluating the effectiveness of systems and mechanisms for identifying, measuring, and monitoring risks to identify deficiencies in these systems.
• Conducting regular assessments of the company's risk tolerance and exposure (such as stress testing).
• Preparing detailed reports on the risks facing the company and the proposed steps for managing them, and presenting these reports to the board of directors.
• Making recommendations to the board on risk management matters.
• Ensuring that the company has adequate resources and systems in place for risk management.
• Assessing the risk management organizational structure and providing recommendations before board adoption.
• Ensuring the independence of risk management employees from activities that could expose the company to risk.
• Ensuring that risk management employees can comprehend the risks inherent in the company's operations and fostering a risk-aware culture throughout the organization.
• Reviewing issues raised by the audit committee that could impact the company's risk management.

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In conclusion, specialized committees proved to be a cornerstone of corporate governance. Through their roles in oversight, review, and strategic decision-making, these committees contribute to enhancing transparency, accountability, and overall corporate performance. Investing in building strong and effective committees is an investment in the company's future and the future of the economy as a whole.

Are you interested in establishing strong committees to protect your company from legal risks?

At Dr. we offer comprehensive legal solutions to enhance your company's governance. Our services include establishing robust committees, developing clear policies, and providing tailored advice to ensure legal compliance and adherence to global best practices.

The services of Dr. Fahad Alrefaei & Dr. Fahad Alrefaei & Partners Consulting & Law Firm:

• Establishing corporate committees: Assisting companies in establishing various committees such as the audit committee, the nominating committee, the Remuneration Committee, and the risk management committee, and defining the roles and responsibilities of each committee.
• Structuring corporate committees: Designing an effective organizational structure for committees and defining the relationship between committees, the board of directors, and executive management.
• Setting policies and procedures: Developing clear policies and procedures for committees, including policies on conflicts of interest, risk management, and transparency.
• Performance evaluation: Conducting regular performance evaluations of committees and recommending necessary adjustments to enhance their performance.
• Training committee members: Providing training programs for committee members on the latest developments in corporate governance and best international practices.

For more information about our legal services, feel free to contact Dr. Fahad Alrefaei & Partners Consulting & Law Firmvia the following communication channels:

• Phone: 920012753
• Email: [email protected]
• Through: Seeking a Legal Consultation