Blog Bite: What's the Point of Committees?

The Board of Directors is allowed to set up committees, which are delegated certain responsibilities of the Board. These committees may consist of directors but also other individuals who are suited to accomplishing whatever goal that committee was formed to accomplish.

Some committees may be temporary or task-based such as a special task force for investigating some internal wrongdoing within the company. Other committees are staples of a robust corporate governance system such as an audit committee (which oversees the company’s financial reporting and relationship with external auditors), a risk committee (which oversees a company’s risk profile and internal risk controls), a governance committee (which, among other things, orients and trains board members), and a compensation committee (which determines compensation for board members or corporate officers).

Committees can sometimes help resolve or avoid conflicts of interest - take, for example, a compensation committee that determines the compensation for company directors. The conflict of interest would be clear if a Board was determining its own pay. Each board member is personally at odds with the corporation in this regard. By handing off the decision to a committee, the conflict is potentially avoided, or at least mitigated.

For more on committees and other topics, check out DealPrep’s Delaware Public Benefit Corporation By-Laws learning library template, and be sure to click through our tags to learn more about each clause!

Written by Sahil. As Lead Content Analyst at Clausehound, Sahil puts his passion for research and writing, and his Law and Business major to good use developing easy to understand blog content and other eLearning materials for entrepreneurs, law students, and business students alike.