The finance and audit committees perform vital activities for boards of directors. While many of their duties and responsibilities are connected, the finance committee charter and the audit committee charter will outline the exact duties the company requires them to perform. The finance committee charter should not detail responsibilities or expectations that overlap with the audit committee responsibilities. Essentially, the audit committee participates in the annual audit, makes recommendations for hiring independent auditors, and monitors compliance with laws and regulations. By contrast, the finance committee oversees the company's balance sheets, investments and returns. While boards delegate various duties to committees and subcommittees, the board of directors bears the ultimate fiduciary responsibility for ensuring that financial reports are accurate and timely.
Sample Finance Committee CharterThe sample finance committee charter that follows more accurately depicts the responsibilities of a finance committee:
GHI Company Finance Committee CharterPurpose The finance committee is a standing committee of the board of directors of the GHI Company. The primary purpose of the finance committee is to assist the board with monitoring and overseeing the company's balance sheet and provide recommendations on the company's capital management strategy. The finance committee shall oversee the capital structure, investments and returns. The finance committee is not responsible for financial reporting, which is the responsibility of the audit committee of the board. Committee Membership The company's secretary/treasurer shall serve the role of the finance committee chair. The audit committee chair shall serve as a member of the finance committee. The board of directors shall appoint three more committee members that shall not be members of the audit committee or members of management. The board chair is the ex-officio member of the finance committee. The committee serves one-year terms beginning January 1st and shall serve until the board chair appoints a new committee. A majority of the members of the finance committee shall be independent members. The board may remove any member from the finance committee at any time. Committee Meetings The finance committee will meet at least three times a year and as often as the finance committee chair deems necessary. The finance committee may meet in-person, via teleconference or via electronic conference. The finance committee chair shall develop an agenda in advance of finance committee meetings and communicate the details to the committee members in a timely manner. The finance committee shall meet with other committees regarding issues of mutual concern. Committee Reports The finance committee chair shall provide a written report at the conclusion of each meeting, which will include an attendance record, a copy of the agenda, a report of committee discussions, and a record of decisions and recommendations. The finance committee chair will file the report within three weeks of the meeting. Delegation of Authority The finance committee may establish subcommittees consisting of a maximum of three members to carry out duties that the finance committee delegates to the extent that the law and the NYSE standards allow. Charter The finance committee shall annually review and reassess the adequacy of this charter and make recommendations to the board of directors for proposed changes. Committee Evaluation The finance committee shall conduct an annual review of its performance, which shall include a review of the committee's compliance with this charter and report the results to the board of directors. Responsibilities The responsibilities of the finance committee shall include the following:
- Long-term capital plan. The finance committee shall review the company's capital plan and offer guidance and advice on the sources and uses of capital and expected returns.
- Oversight of financial information. The finance committee shall review the company's quarterly financial statements, annual resource allocation plan including the resource allocation plan to actual results, liquidity status, status of significant operating and revenue investment plans, and other financial information concerning the company.
- Capital structure and management. The finance committee shall be responsible for reviewing the finance committee's financial policies, capital structure and strategy for acquiring financial resources and make appropriate recommendations to the board. The finance committee shall also review the company's share repurchase activities and plans and the dividend policy and make recommendations to the board.
- Mergers, acquisitions, divestitures and other strategic investments. The finance committee shall review proposed mergers, acquisitions, joint ventures and divestitures, along with the financial implications of proposed transactions. The finance committee shall review proposed transactions in accordance with the company's policies and practices and make recommendations to the board of directors. The finance committee will monitor the financial performance of transactions completed.
- Passive investments. The finance committee shall review and approve all private equity, hedge funds and other passive investments made by the company.
- Benefit and retirement plans. The finance committee shall oversee the financial, investment and actuarial policies and objectives of the company's benefit plans and shall review the performance of investment plans on a quarterly basis, including funds in the employee retirement annuity plan.
- Corporate financing. The finance committee shall oversee the issuance or guarantee of securities by the company and offer terms of such securities and guarantees.
- Risk management and insurance coverage. The finance committee shall periodically review the company's overall risk management plans and major insurance policies. In addition, the finance committee shall review the significant financial exposures and contingent liabilities of the company. The finance committee shall also oversee risk management as it relates to the risk areas assigned to it by the board chair and submit a report to the audit committee each year.
Software Solutions Streamline and Enhance the Work of Finance CommitteesThe many responsibilities of finance committees require them to work in complete confidence. Governance Cloud by Diligent offers an entire suite of software solutions for boards and board committees. Diligent Boards is a board portal system that helps boards and committees streamline board and committee meetings. Diligent Messenger is a highly secure communications tool that erases concerns over using less secure personal and business email accounts. Finance committee charters typically require committees to evaluate themselves. Diligent's board assessment software makes the self-evaluation process fast and easy. One of the greatest benefits of Governance Cloud is that all the products integrate seamlessly with one another. Governance Cloud supports all aspects of good corporate governance. Don't let another finance committee meeting pass by without learning about how Governance Cloud supports good corporate governance.
The Rising Tide of ESG – Navigating the Road Ahead
The Board's Role in Leading and Enabling GRC
Board and Executive Collaboration: Components of a Secure Platform for the Evolving Workplace