Consideration Report For Nomination Remuneration And Audit Committees Accounting Essay

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Perhaps in very unfortunate ways, the resurgence of egregious financial fraud, accountings malpractices, and generalised malfeasance of management over the last few years, has once again chronicled the relevance of stricter oversights and better governance in the corporate world [2] . Brisk instances of corporate misconduct traced across the labyrinth of corporate power to the top of establishments like ENRON, WorldCom, Adelphia and Global Crossing, for instance, have put paid to their reputations and credibility till date, and even importantly, raised serious questions about the adequate functioning of checks and balance structures operational in institutions such as these that are often deemed "too big to fail". It is indeed, partly out of a desire to, as De Maria puts it, "forsake the errors of a past festooned with nonchalance and complicity about corporate wrongdoing" [3] that world leaders are currently tilting the international financial agenda towards the establishment of more regulatory mechanisms and oversight systems for the corporate sector [4] .

As complex as corporations may appear today, most are organised along relatively simple bureaucratic patterns and structures intended to distribute power, roles and responsibilities across respective strata in the corporate ladder, in order to prevent excessive power accumulation in few hands, enhance efficiency and effective management, while minimising the occurrence of corporate misconduct. Within this structure, company secretaries play a pivotal role in the success of the company, and their responsibilities are usually aimed at satisfying three major constituencies: the board, the company and the shareholders [5] . Generally, the responsibilities of company secretaries for instance, include amongst a myriad of other things, advising the board-usually through the chair-on all governance and regulations-based matters, overseeing the daily functioning of the company (usually based upon instructions from the director) ensuring timely and effective information flows within the board and across respective committees, as well as between non-executive directors and senior management, to name a few.

Purpose of Report

This report is not focused on an elaboration of the functions and responsibilities of the company secretary. Rather, it aims at introducing the directors of First Light Plc to the roles, and range of responsibilities of the audit, nomination and remuneration committees, showing how they contribute towards the enhancement of good corporate governance in the company. These committees, through their operations, gate-keep a culture of transparency and democracy, foster good practice and guarantee the smooth and effective management of the establishment. These tenets are not only good but profitable as well, for instance, as performance of the bid of floating shares in Alternative Market rely heavily on compliance with good practices and rules of the road such as Stock Exchange guidelines.

3.0 Brief Discussion on the Rationale for the Committees

Guaranteeing checks and balances is a key consideration when constituting the audit, remuneration and nomination committees, and this is especially aimed at ensuring that information and power are not concentrated in, and radiate from particular individuals and groups. Consequently, the committees are structured to reflect a strong presence of both executive and non-executive directors-this being particularly critical in ensuring objectivity while at the same time, spreading the decision making landscape from the domination of specific interests. Attendance in the course of committee sessions is restricted to members only, although in rare occasions, other non-committee members could be attended to sit in sessions on the behest of the committee chair, in consultation with other members of the respective committees. These rules are to ensure that the decision making process within the respective committees is free as much as possible from undue influence of one individual or a group of members. Usually, these rules are always spelt in annual reports which also identify the respective authorities within specific committees-from the chairpersons, chief executives, senior independent directors as well as other members of the respective committees. In addition, a calendar of various committee activities are clearly reflected within these reports, stating for instance the number of times the respective committees sat, attendance of such sessions, key decisions arrived at etc. An outline of the credentials of members of these committees is included in order to communicate transparency and credibility, as their skills, and experiences are reflected here as well.

De Maria (2010) argues that above everything else, the nomination, audit and remuneration committees play the vital roles of monitoring and examining company adherence to good practices of corporate governance-more or less a watchdog,, making recommendations for appropriate actions to address emerging challenges and threats before they become lethal to the company's health(such as checking against excessive and unguided risk taking, and ensuring that productive is optimized by oversee the recruitment of right skills etc). In the end, by ensuring better governance, companies effectively build a sound reputation, which is in itself key to attracting investments, and promoting company's products and services (Dowling, 1986) [6] 

Risk taking is important for any business in enhancing, consolidating and expanding its profit margins. However, there is crucial need for the establishment of decision making processes, internal control mechanisms and oversights to ensure that ventures into risk taking are thoroughly calculated, and in consonance with statutory requirements and existing rules of the road. This is where the audit committee gains its primacy. Furthermore, the futures of companies lie significantly in their ability to recruit, maintain and motivate a pool of highly performant human resources. By setting up the remuneration committee and engineering it to be an excellent tool for motivation, companies can maximize their productivity and ensure the same in the long-haul. Even critically, the Nomination committee comes in to address the need for a transparent independent mechanism charged with processing board appointments based on outlined practices and rules, while at the same time, generating recommendations geared at ensuring that the board is credible and transparent in its functioning. From the above, perhaps the key requirement essential for the smooth operation of these committees lie in their independence and accountability. One cannot underestimate these virtues especially in modern business environments where transparency is the bedrock upon which the reputation and productivity of companies are built. Indeed, research has found sound correlation between the reputation of a company and its ability to access capital markets(Beatty and Ritter, 1986) [7] By presenting the company's financial and non-financial position publicly, for instance, both internal and external safeguards are established which signal positively to the viability and integrity of the reporting system being used by the company.

4.0 The Nomination Committee

This committee is empowered with efficient tools and mechanism to supervise and examine the selection and appointment of company directors and senior executives, in line with principles and processes consonant with good practice. A majority of the committee's members are comprised of independent non-executive directors, and it is chaired by the board chairperson or an independent non-executive director. The only exception to this rule is with respect to deliberations surrounding the appointment of a successor to the chairperson of the nomination committee, in which case the existing chairperson is disallowed to chair any session that is relate to succession of his or her chairpersonship. Generally, the nomination committee makes its terms of reference available, which explains its authority, roles, and range of activities delegated to it by the board.

A major part of the committee's duties involves the evaluation of the balance of expertise, knowledge, skills and experience on the board. Based on this evaluation, a description of the respective roles, capacities and responsibilities for specific appointments are prepared. With respect to the appointment of a chairperson, the nomination committee prepares the requisite job specification, including assessment of the expected time commitment to the function, especially recognizing the need for unreserved attention in time of crisis.

Usually, a separate section of the annual report is dedicated to describing the nomination committee's work, especially those in relations to the processes followed to arrive at board appointments. In cases where either external consultancy services or open advertisements have been used in the appointment of chairpersons or non-executive director, notes are equally made to explain the reasons why.

4.1 Responsibilities of the Nomination Committee

The nomination committee is guided by a charter that explicitly sets out the committee's roles, responsibilities, composition, structure, membership requirements as well as procedures and requirements for the invitation of non-committee members to sit in committee sessions. In addition to its range of responsibilities, the nomination committee is allowed access to adequate internal and external resources, including access to advice from external consultants or specialists. Based on its authority, the committee has the powers to make important recommendations on a range of strategic issues centered on the following areas:

Authorizing assessment of the range of necessary and desirable competencies of members sitting on the board.

Set in motion and supervise the review of the board's succession plans,

Undertake an evaluation of the board's performance, especially those of the respective committees and each of the directors

Make recommendations with respect to appointments and re-election of directors at the end of their tenures

Elections into the nomination committee are organized annually, and in this case, this committee will be comprised of at least two members since it is still a small growing company. The small size of this company is an asset, as it makes decision making quite easy, and facilitates the functioning of the corporate bureaucracy.

5.0 The Remuneration Committee

Without a doubt, the remuneration committee plays the vital role of acting as an efficient for directing the company's remuneration policy towards a more focused path, one that motivates employees and stimulates increased productivity. As a small growing company, the board's remuneration committee comprises of at least two members, consisting of independent and non-executive directors as earlier on highlighted. This committee is equally guided by a terms of reference which clearly spells out its roles, responsibilities, and the range of authority delegated to it. Even importantly, the remuneration committee is empowered to examine, and dispense as deemed appropriate, judgement on the company's position with respect to other companies in similar line of production, and then provide recommendations to make the company much more competitive and stronger. One way in which this could be achieved is through cautious comparative analysis of remuneration policies across similar more competitive businesses, with care taken not to ratchet up remuneration levels in the company which are dissonant with levels of productivity and performance. The committee is usually very alert to sensitive employment and pay conditions within specific groups elsewhere, especially with regards to the determination of annual salaries.

5.1 Responsibilities of the Remuneration Committee

This committee is charged with providing vital information to the board on viable ways of attracting, retaining employees, as well as motivating directors on the need to maintain the human resource quality required to run the company successfully while being cautious not to remunerate more than is necessary for the purpose. Usually, a clearly significant proportion of the remuneration of executive directors, for instance, are structured in such a way as to link rewards directly to corporate productivity and individual performance.

With respect to non-executive directors, it is the duty of the remuneration committee to ensure that these directors dedicate time and commitment to the discharge of their functions. In this light, the committee is charged with determining remuneration standards for the chairperson and all directors, including such issues as pension rights, compensation payments, and more importantly, supervising the remuneration level and structure for senior management. It is finally within the remuneration committee's responsibility to consider whether or not company directors should be eligible for annual benefits and productivity bonuses, mindful of the realization of key performance indicators, mostly designed to enhance shareholder value.

6.0 The Audit Committee

As important as its functions are, the board audit committee remains an efficient mechanism for enhancing corporate integrity of the company's financial reporting system. It is particularly crucial that the audit committee be independent and forthright -as this has been recognised world over as an important hallmark of good corporate governance. As a small growing company, the board is empowered to establish an audit committee comprising of at least two members(independent non-executive directors). It is allowable for the chairperson of the company to be a member of this committee, but not the chair of audit committee sessions. It is obligatory for the board to satisfy itself with the assurance that at least one member of the committee has grounded relevant financial expertise and or experience. This is particularly important in guaranteeing and reflecting transparency, while at the same time, exercising/ implementing the necessary control on the company's financial reporting, as well as its relationship with external auditors. Generally, the audit committee acts upon authority that the board delegates to it. As with the other committees, there is a separate section of the annual report dedicated to describing the audit committee's activities and how they've been discharged.

6.1 Responsibilities of the Audit Committee

The audit committee reviews and monitors the effectiveness and transparency of financial statements and internal audit activities, while making yearly recommendations to the board, on for instance, any inappropriacies with the internal audit system in the annual report. The committee also makes formal announcements relating to the company's financial performance, generally reviewing the significant financial reporting dimensions and judgments they contain. It is also charged with verifying the objectivity and integrity of the external auditing processes, mindful of United Kingdom professional principles and regulatory requirements necessary to support its shares floating on the Alternative Investment Market (AIM). As a policy driven body, the audit committee develops and implements policies on the engagement and use of the services of external auditing agencies in providing non-audit services, while considering the relevant professional and ethical stipulations surrounding this domain. In this respects, recommendation are made to the board for appropriate steps to be taken.

Furthermore, the audit committee is primarily responsible for generating relevant recommendations on the appointment, re-confirmation or sacking of the external auditors, although the board has a right to reject such recommendations, in which case explanation for its decisions are included in the company's annual report as well as in other papers concerned with appointments and reappointments. Further to this, the audit committee has the duty to explain in written form, the nature of the recommendations made, while succinctly stating the reasons for the board's refusal, as well as other proposals made for alternative action. The committee also keeps minutes on its meetings and sessions, which are usually included in the collection of papers for the proceeding full board meeting, following the respective audit committee meetings.


All in all, the audit, remuneration and nomination committees play vital roles in enhancing good corporate governance in companies. They act as instruments for enhancing corporate performance by gate-keeping transparency, enforcing necessary oversights, while at the same time, seeking ways of making the company much more motivated and competitive in its sector. By doing this, there is greater accountability to shareholders, more versatility in the board's functioning, and higher financial standing hence prospects for profitability as a whole. At a time when the world has savored the devastating consequences of corruption and bad corporate governance in the lives of businesses, one cannot underestimate the roles played by such committees.

However, there is need for more robust oversights to be established to maximize accountability and transparency. For instance, the might be some dividends in terms of transparency, in separating the functions of the chairperson and those of the owner of the company. This could see the owner of the company becoming the CEO while the chairperson of the board of directors is elected from other company shareholders. This might look overambitious, but it could be a better way of preventing the excessive concentration of power in the hands of one or a few individuals - a fine recipe for autocratic management, mismanagement, and even fraud.