As long as people have been organizing into companies and groups, rules and accountability have come into play. Corporate governance is a system that spells out the rights and responsibilities of different members of the organization, according to the Organisation for Economic Co-operation and Development, OECD. In companies, a governance committee is made up of members of the management board and acts to protect shareholders, and may have other duties such as nominating board members.
A committee overseeing rules, transparency and accountability is also helping to provide tangible measures of business performance and showing where the money is going. A company in which power is being used for an agreed-upon purpose, rather than diverting this power or being secretive, is seen as better for society as a whole. As such, a governance committee can prove important in mitigating a crisis. For example, systematic weakness in corporate governance led to the collapse of many U.S. companies in 2001 and 2002 starting with Enron, according to The University of Technology Sydney.
Companies have their own guidelines for governance committees but they are generally based on principles set out by the OECD in the mid to late 1990s. To look at an example, the governance committee for insurance company AFLAC selects new management board members, advises the board on procedures, develops corporate governance principles and oversees board evaluation. The committee of three independent directors meets twice a year. It can retain independent auditors or assessors and select other board committees.
Governance committees are also important to nonprofit organizations even though there are not shareholders to answer to. The committee is sometimes called the nominating committee or board development committee, as usually its main duty is to recruit new board members and make sure they are well equipped to do their jobs. The governance committee will examine the board for weaknesses, find the best people for the jobs and provide continuing education. It writes the job descriptions, and makes sure the board undergoes regular self assessment.
If an independent board of directors over-reaches in its control of executive management, entrepreneurship and innovation at a company can be stifled, according to an article in the "Business Standard" newspaper. It argues that the actions of the governance committee are not quantifiable, and its role in overseeing financial transparency can be replaced by tougher accounting standards and a stronger role of the board audit committee. Also, the corporate governance system tends to be the same for all companies, giving shareholders little choice in the matter.