Board committees are the working units of corporate governance: the NYSE and Nasdaq listing rules require every listed company to maintain an audit committee, a compensation committee and a nominating and governance committee, each composed of independent directors under exchange-specific tests and operating under a board-approved charter. The committee system exists because full boards meet too rarely to supervise technical domains; the design consequence is that liability, expertise and workload concentrate — the audit committee's duties are fixed by federal statute, and Delaware oversight doctrine reads committee structure as the board's answer to its Caremark obligations.
USA Post publishes information about governance requirements, not legal advice.
What does the audit committee do?
The audit committee's mandate comes from Section 3(a)(58) of the Exchange Act, SEC rules implementing Listing Standard 10A, and exchange rules: it appoints, compensates and oversees the outside auditor; pre-approves all audit and permitted non-audit services; supervises internal audit and the whistleblower and complaint procedures for accounting matters; and discusses risk management and the financial statements with management before filing. The auditor reports to the committee, not to the CFO — the structural point of the 2002 Sarbanes-Oxley reforms. SEC rules also require disclosure of whether at least one member is an "audit committee financial expert" and of the committee's procedures for handling complaints. Chairing an audit committee is the single most time-intensive non-executive role at a public company, and post-2022 enforcement against audit-committee oversight failures in China-based issuers confirmed regulators will read sloppy committee process as a board-level deficiency.
What does the compensation committee do?
The compensation committee designs and administers executive and director pay: philosophy, metrics, benchmarking, employment and severance agreements, incentive-plan approval, and stock-plan administration under Rule 16b-3. Its output faces three external gauges — the say-on-pay vote, proxy adviser policies, and the SEC's pay-versus-performance disclosure under Item 402(v) — so the committee's real work is building a defensible record: benchmarking data, consultant independence under exchange rules, minutes connecting metrics to strategy. Delaware's MFW line also routes through this committee: a properly empowered independent special committee is often drawn from the compensation or a specially constituted committee in going-private and conflicted deals, and its "genuine bargaining power" is judged by its charter authority to say no.
What does the nominating and governance committee do?
The nominating and governance committee owns the board's composition and mechanics: identifying and vetting director candidates, running the skills-and-diversity matrix disclosed in proxy statements, recommending committee assignments, leading board and committee self-evaluations, and maintaining governance documents — bylaws, committee charters, related-person transaction policies, and shareholder-engagement practices. Under the SEC's universal proxy rule (Rule 14a-19, effective 2022), contested elections put all nominees on one card, which shifted weight to this committee's candidate-vetting and shareholder-outreach work: activist campaigns now turn on board-refreshment credibility as much as on strategy.
What other committees do boards form?
Common additions: a risk committee at financial institutions (effectively mandated for large banks by the Federal Reserve), a technology or cybersecurity committee — the listing-rule response to the SEC's Item 106 governance disclosure — an ESG or sustainability committee feeding CSRD and California climate disclosures, an executive committee exercising board power between meetings under DGCL Section 141(c), and special committees for conflicted transactions. Finance, safety and quality committees appear in capital-intensive industries. Each additional committee must publish a charter and assess independence where listing rules reach; adopting committees without staffing them with qualified, genuinely independent members has been read by Delaware courts as governance theater in several post-2020 oversight decisions.
How should committee charters and memberships be structured?
- Adopt written charters meeting the exchange checklists, then add company-specific authority — approval thresholds, say-no rights, direct adviser access.
- Match membership to mandate: financial sophistication on audit, pay-design literacy on compensation, and independence verified against the exchange's bright-line tests (auditor, compensation, interlocking relationships).
- Give every committee unrestricted access to independent counsel and advisers at company expense — the authority the listing rules name is meaningless without it.
- Rotate memberships deliberately; ten-year audit-committee tenure concentrates key-person risk and signals staleness to proxy advisers.
- Report actions to the full board and minute deliberations — the record Caremark litigation later examines is the committee's.
Do committees reduce board liability?
They structure it. Federal law channels specific duties — auditor oversight, whistleblower complaints, insider-trading plans under amended Rule 10b5-1 requiring board or committee sign-off — to the committee, and Delaware oversight doctrine expects boards to design a reporting system, which in practice means committees that actually meet, ask, and document. A committee that exists on paper but neither receives reports nor escalates is worse than none: it evidences that the board knew where oversight belonged and neglected to make it real.
For more context, read Independent Directors Explained: The Tests, the Limits and Why Boards Need Them.
For more context, read board diversity disclosure rules.