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Let’s talk: governance – April 2014

Beyond key committees

Boards create committees to support oversight responsibilities

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A company’s governance practices — including committee organization — should be developed taking into account the specific circumstances at the company and in its industry.

Nearly every S&P 500 company board has three key committees — audit, compensation and nominating — to carry out critical board functions. Many boards also have created additional standing committees to assist with oversight responsibilities. Beyond specific regulatory and exchange-listing requirements associated with key committees, boards often create committees and delegate responsibilities as appropriate, based on company-specific circumstances.

This research provides insights on what additional committees we see boards maintaining and the responsibilities assigned to these committees.

Key findings

Beyond audit, compensation and nomination committees, nearly three-quarters of S&P 500 companies have at least one additional committee. The average number of additional committees is 1.3.

  • The most common committees based on function are finance (38%) and executive (37%).
    • More than 20% of finance committees are found in the consumer discretionary and financial services sectors.
    • Around 20% of executive committees are in these sectors as well. Once common, these committees are in decline. More than 60% of S&P 500 companies had executive committees in 1998 compared with less than 40% today.
  • Just over 10% of S&P 500 companies have a separate compliance committee. One-third of these committees are in the health care industry, and nearly one-quarter are in the energy sector.
  • Only 8% of S&P 500 companies have a separate risk committee – and more than three-quarters of these companies are in financial services.
  • Some boards have created committees to oversee emerging issues:
    • 7% of S&P 500 boards have a sustainability committee. Companies in the materials, financial and consumer staples sectors are most likely to have a sustainability committee.
    • 4% have a technology committee, and one-third of these are financial services companies.
  • Sectors most likely to have additional committees include utilities (averaging 2.5 additional committees per board), financial institutions (1.7), health care (1.5) and materials (1.4).
  • The information technology sector averages the lowest number of additional committees – fewer than one per company (0.7).

Most common additional board committees at S&P 500 companies

Companies with this committee Committee function and common responsibilities Top three sectors with this committee (% of industry)
EY - Enterprise intelligence: aligning needs and goals

Finance

  • Oversees financial policies, strateies, capital structure, and annual operating and capital budget
  • May also oversee investments, dividend policy, credit and other market risks, share repurchases, and mergers and acquisitions
  • Functions may overlap with risk and strategy committees

  • Utilities (84%)
  • Telecommunications (60%)
  • Consumer discretionary (43%)
  • Financial services (43%)
EY - Enterprise intelligence: aligning needs and goals

Executive

  • Exercises authority of the board when the board is not in session, except in cases where action of the entire board is required by charter, bylaws or applicable law

  • Financial services (51%)
  • Utilities (45%)
  • Industries (43%)
EY - Enterprise intelligence: aligning needs and goals

Compliance

  • Oversees programs and performance related to legal and regulatory risks, as well as implementation and maintenance of the company’s code of conduct and related matters
  • May focus specifically on compliance in the following areas: environmental, health, safety and technology
  • Functions may overlap with risk, public policy and sustainability committees

  • Health care (35%)
  • Energy (27%)
  • Materials (23%)
EY - Enterprise intelligence: aligning needs and goals

Risk

  • Oversees enterprise-wide risk management to identify, assess and address major risks facing the company, which may include credit, operational, compliance/regulatory, interest, liquidity, investment, funding, market, strategic, reputational, emerging and other risks
  • Reviews and discusses management’s assessment of the company’s aggregate enterprise-wide risk profile
  • Recommends the articulation and establishment of the company’s overall risk tolerance and risk appetite
  • Functions may overlap with finance and compliance committees

  • Financial services (35%)
  • Telecommunications (20%)
  • Utilities (6%)
EY - Enterprise intelligence: aligning needs and goals

Sustainability

  • Reviews policies and practices related to significant public issues of concern to shareholders, the company, employees, communities served and the general public, with oversight of corporate responsibility, environmental sustainability, diversity and inclusiveness, and/or brand management program
  • Functions may overlap with public policy and compliance committees

  • Materials (23%)
  • Telecommunications (20%)
  • Consumer stapels (13%)