Committee Terms of Reference: A Guide for Boards

By Adrian Lawrence FCA, founder of NED Capital · Part of the Board Governance Hub

Board committees do much of the detailed work of governance — the close scrutiny of financial reporting, executive pay, risk and board composition that the full board cannot give every matter. Terms of reference are the documents that define what each committee does: its purpose, its authority, its membership, its responsibilities and how it reports to the board. Well-drafted terms of reference make a committee effective and its boundaries clear; vague or outdated ones leave gaps, overlaps and confusion about who is responsible for what. This guide sets out what board committee terms of reference should contain, how they differ across the main committees, and how to write and review them so they genuinely support good governance rather than sitting unread in a governance file.

It is written for chairs, company secretaries, committee chairs and boards, and draws on NED Capital’s work with boards and committees across sectors. Every engagement is led personally by Adrian Lawrence FCA.

What Terms of Reference Are For

Terms of reference define a committee’s remit and give it its authority. A board committee exists because the board delegates certain responsibilities to a smaller group of directors who can give them closer attention — but that delegation must be clear, or the committee’s work and the board’s own responsibilities blur. Terms of reference set out precisely what the board has delegated to the committee, what authority the committee has, who sits on it, what it is responsible for, and how it reports back. They protect the board by making clear what the committee is accountable for; they protect the committee by defining the scope of its authority; and they support good governance by ensuring nothing important falls between the committee and the board. For listed companies, the UK Corporate Governance Code and the guidance around it shape what the main committees’ terms of reference should cover, and model terms of reference are widely available as starting points.

What Good Terms of Reference Contain

Whatever the committee, good terms of reference cover a consistent set of elements. The committee’s purpose — a clear statement of why it exists and what it is there to do. Its membership — how many members, who is eligible, the independence requirements, and who chairs it. Its authority — what the committee is empowered to do, including its access to information, management, and external advice. Its responsibilities — the specific matters it is accountable for, set out clearly enough to leave no doubt. Its meetings — how often it meets, quorum, and who else attends. Its reporting — how and how often it reports to the board. And its own review — how the committee’s effectiveness and its terms of reference are periodically assessed. Terms of reference that cover these clearly give a committee everything it needs to operate; those that are vague on authority or responsibilities leave the committee uncertain of its remit and the board uncertain of what it can rely on the committee for.

The Main Committees and How Their Terms Differ

The three committees most listed and larger companies maintain — audit, remuneration and nomination — have distinct remits, and their terms of reference reflect this. The audit committee’s terms cover the integrity of financial reporting, internal controls and risk management, the external and internal audit relationships, and whistleblowing — the assurance functions, requiring independent members with financial expertise. Our audit committee chair recruitment page covers who leads it. The remuneration committee’s terms cover executive and senior reward, the alignment of pay with performance and strategy, and engagement with shareholders on pay — a remit that has widened to include workforce pay and fairness; our remuneration committee chair recruitment page covers its chair. The nomination committee’s terms cover board composition, succession planning, and the process for board appointments — the committee that keeps the board itself effective and renewed. Some companies also maintain a separate risk committee, particularly in financial services. Each committee’s terms of reference must reflect its specific remit, while following the common structure above.

Writing and Reviewing Terms of Reference

Terms of reference are best written from a sound model — model terms for the main committees are published by governance bodies and provide a well-considered starting point — then adapted to the specific company, its structure and its needs. Adapting rather than adopting wholesale matters: a small company’s committee will not need everything a FTSE committee’s terms include, and a company in a particular sector or regulatory context may need more. Terms of reference should also be reviewed regularly, typically annually, because a company’s needs change, governance expectations evolve, and terms that are not reviewed drift out of date — describing a committee that no longer matches reality. The review is a natural part of the committee’s own annual effectiveness assessment. Terms of reference that are written thoughtfully, adapted to the company, and kept current are a genuine governance tool; those adopted from a template and never revisited are a governance formality that can mislead as much as guide.

A Worked Example: Where Vague Terms Cause Problems

The value of clear terms of reference is most visible when they are absent. Consider a company where risk oversight sat, in theory, with the audit committee, but the audit committee’s terms of reference described its risk role only vaguely — a single line about “reviewing risk” among a list of financial-reporting duties. In practice the committee, busy with the accounts and the audit, gave risk little attention, and the board assumed the committee was covering it. A significant operational risk went unexamined by either the committee, which thought its focus was financial, or the board, which thought the committee had it in hand. The gap was not a failure of people but of definition: no document made clear who was responsible for what, so an important matter fell between them.

After the event, the company clarified its committees’ terms of reference — giving risk oversight an explicit, properly defined home, whether within an expanded audit committee remit or a separate risk committee — and the ambiguity that had allowed the gap disappeared. The lesson is general: terms of reference are not administrative box-ticking but the definitions that determine whether governance responsibilities are clearly owned or quietly fall between committees and the board. Clear terms prevent the gaps; vague ones invite them.

Frequently Asked Questions

What should committee terms of reference contain?

The committee’s purpose, membership and independence requirements, authority, specific responsibilities, meeting arrangements, how it reports to the board, and how its own effectiveness and terms are reviewed. Model terms for the main committees provide a good starting point to adapt.

What are the main board committees?

Most listed and larger companies maintain audit, remuneration and nomination committees, and some — particularly in financial services — also a risk committee. Each has a distinct remit reflected in its own terms of reference.

How often should terms of reference be reviewed?

Typically annually, as part of each committee’s effectiveness assessment. Company needs and governance expectations change, and terms that are not reviewed drift out of date and can mislead about what a committee actually does.

Can we use model terms of reference?

Yes — model terms published by governance bodies are a well-considered starting point. But they should be adapted to the specific company, its structure and its needs, rather than adopted wholesale, because a template rarely fits a particular company exactly.

Who is responsible for committee terms of reference?

The board approves them, the committee chair and company secretary usually draft and maintain them, and the committee reviews its own terms as part of its annual effectiveness assessment. The board retains overall responsibility for what it has delegated.

What happens if committee remits overlap or leave gaps?

Governance responsibilities can fall between committees or between a committee and the board, as when risk oversight is vaguely assigned and neither party attends to it properly. Clear terms of reference that define each committee’s remit precisely are what prevent these gaps.

NED Capital | Sister practice of FD Capital | ICAEW practising certificate held by Adrian Lawrence FCA.