Financial Risk Manager Part 1
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Most companies now have several subsets of the board called 'board committees'. Why are such committees formed?
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TTanishq
A
To directly report to shareholders on specific issues.
B
To enable the directors to reduce their individual liability and therefore serve more confidently.
C
To enhance the overall effectiveness of the board.
D
To introduce independence, thereby enabling verification of decisions/materials brought to the attention of the entire board.
Explanation:
The primary reason for the formation of board committees within a company is to enhance the overall effectiveness of the board. The board of directors in a company is responsible for making key decisions and setting the strategic direction of the company. However, the board is often comprised of individuals with diverse backgrounds and expertise, and it can be challenging for the board to effectively manage all aspects of the company's operations. Therefore, board committees are established to help streamline decision-making, provide specialized oversight, and ensure that critical areas—such as finance, audit, governance, and compensation—are managed efficiently and effectively. This structure enhances the board’s ability to fulfill its responsibilities without being overwhelmed by the breadth of operational matters.
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