Your Board Has Committees. But Do They Have Direction? The Case for Proper Terms of Reference
Most boards that have been operating for any length of time have committees. An Audit Committee here. A Risk Committee there. Sometimes a Nominations or Remuneration Committee. On paper, the governance structure looks complete.
But ask a pointed question - "Can I see the Terms of Reference for that committee?" - and what follows is often a long pause, a rummage through shared drives, or the quiet admission that the document exists somewhere, was written years ago, and has not been looked at since.
This is one of the most common and most consequential gaps in board governance across Kenya and the wider African market. Committees without current, functional Terms of Reference are committees operating on assumption. And assumption, in governance, is where accountability goes to disappear.
What a Terms of Reference Is — and What It Is Not
A Terms of Reference (TOR) is the governing document of a board committee. It defines the committee's purpose, scope, authority, composition, and reporting obligations. It is the document that answers the most fundamental governance questions about that committee:
· Why does this committee exist?
· What decisions can it make on its own, and what must it refer to the full board?
· Who sits on it, and how are they appointed?
· How often does it meet, and what constitutes a quorum?
· Who does it report to, and in what format?
A TOR is not a meeting agenda. It is not a committee report. It is the constitutional document that gives the committee its mandate and its boundaries and without it, the committee is technically a gathering of directors with no formal authority to act.
Why TORs Matter More Than Most Boards Realize
1. They define authority and limits. A committee can only exercise the powers that the board has formally delegated to it. Kenya's corporate governance framework is clear that delegation to committees is governed by the company's articles of association and must be scoped to the committee's area of expertise. A TOR is the instrument through which that delegation is documented and bounded. Without it, the committee's decisions may be challenged as exceeding its mandate.
2. They protect against accountability gaps. When something goes wrong, say a compliance failure, an audit finding, a risk that was not escalated, the first question asked is who was responsible for oversight. A clear TOR creates an unambiguous answer. The absence of one creates a gap that everyone can step away from.
3. They enable meaningful performance evaluation. Kenya's CMA Code of Corporate Governance and the Mwongozo Code for state corporations both expect boards to undertake regular performance evaluations — including assessment of committee effectiveness. A committee cannot be meaningfully evaluated against a mandate it never formally had.
4. They signal governance seriousness to external stakeholders. Investors, lenders, development finance institutions, and regulators conducting due diligence consistently ask to see committee TORs as evidence that governance structures are substantive, not ornamental. The absence of current TORs is a red flag.
What a Proper TOR Must Contain
1. Purpose and objectives
A clear statement of why the committee exists and what governance function it serves. This is the most important section. It frames everything else.
2. Scope and authority
What the committee is empowered to decide, approve, or recommend. What is explicitly outside its mandate. Whether it has delegated authority to act on behalf of the board in certain matters, or whether all decisions require full board ratification.
3. Composition and membership
The required number of members, any independence requirements, how members are appointed, and the tenure terms. For the Audit Committee, Kenya's governance codes require independent non-executive directors. This must be reflected in the TOR.
4. Chairperson
Who chairs the committee, how they are appointed, and what happens in their absence.
5. Meeting arrangements
Minimum meeting frequency, quorum requirements, notice periods, and whether decisions can be taken outside of meetings.
6. Reporting obligations
How and when the committee reports to the full board. The format of that reporting; whether through written reports, verbal updates, or formal minutes tabled at board meetings.
7. Review clause
A statement of when the TOR will next be reviewed. This is non-negotiable. A TOR with no review date is a TOR that will become stale, and a stale TOR is almost as problematic as no TOR at all.
The Living Document Problem
A TOR drafted during a governance audit three years ago and filed away is not an active governance instrument. It is a historical record.
TORs must be treated as living documents, reviewed at least annually, and immediately whenever:
· The committee's mandate changes due to a shift in organizational strategy
· Regulatory requirements affecting the committee's scope are updated
· The committee's composition changes significantly
· A governance audit or board evaluation identifies gaps in the committee's functioning
The Company Secretary is typically responsible for managing this review cycle and flagging when TORs are due for review, coordinating the update process, and ensuring the approved version is the one being used.
Conclusion
The most important thing to carry forward is this: a committee is only as effective as the clarity of its mandate. And a mandate without a current, board-approved TOR is a mandate in name only.
Contact Us
For support drafting, reviewing, or updating board committee Terms of Reference, Azali CPS works with boards across Africa to build governance frameworks that are clear, current, and enforceable.
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