Rethinking board committees: from advisory forums to governance mechanisms 

A common misconception in Australian governance is that board committees exist only to review matters and make recommendations to the full board. That is not correct. 

Under s 198D of the Corporations Act 2001 (Cth), boards may delegate genuine decision-making authority to committees. Properly constituted committees can therefore make binding decisions on behalf of the company. 

But the more important governance question is not whether committees can make decisions. It is whether committee structures genuinely improve governance outcomes. 

When committee roles are poorly designed, organisations often drift into one of two ineffective models: boards that duplicate committee work by re-reviewing matters already scrutinised in detail, or committees that operate as de facto decision-makers without sufficiently clear accountability or oversight. 

Neither approach delivers effective governance. 

Well-designed delegation frameworks strike a more deliberate balance. They allow committees to exercise genuine authority where it adds value, while maintaining clear accountability between management, committees and the board. 

The legal position 

Section 198D permits directors to delegate powers to: 

• committees of directors  

• directors  

• employees  

• other persons  

unless restricted by the company’s constitution. This delegation power is broad and is not confined to advisory functions. 

However, delegation does not remove board accountability. Although s 190 provides protection where directors reasonably rely on competent and reliable delegates, directors must still maintain appropriate oversight and cannot abdicate their responsibilities. 

Directors’ statutory duties also remain personal. Duties of care, diligence, good faith and proper purpose cannot be transferred to a committee. 

The legal principle is therefore straightforward: – Committees may exercise delegated authority, but directors cannot delegate accountability. 

The governance challenge is therefore not whether committees may decide matters, but how delegated authority is structured, supervised and integrated into the broader governance framework. 

Regulated industries and board accountability 

The position is more nuanced in heavily regulated sectors such as banking, insurance, superannuation, aged care and healthcare. 

While corporations law permits delegation to committees, many regulatory frameworks impose obligations directly on boards themselves. In APRA-regulated entities, prudential standards frequently require boards to approve, oversee or form views on key matters. Similarly, governance reforms in sectors such as aged care and healthcare increasingly require boards to maintain direct oversight of quality, safety and risk frameworks. 

As a result, committees in these environments often play a stronger advisory and oversight role, with boards retaining responsibility for major regulatory, prudential or safety-related decisions. 

This does not prevent delegation. Rather, it means delegation frameworks must be carefully aligned with regulatory obligations, reserved board matters and executive accountability structures. 

Even in these environments, committees remain critical mechanisms for detailed scrutiny, specialised oversight and informed board decision-making. 

Advisory and delegated committee functions 

Boards should clearly distinguish between matters where committees provide advice and recommendations to the board; and matters where committees exercise delegated authority on the board’s behalf. In practice, most committees perform both functions. 

For some matters, committees review issues in detail and recommend a course of action, with the board retaining final authority. For other matters, committees may hold actual decision-making authority within defined limits, allowing decisions to be made without requiring full board approval. 

This delegated model works well when specialised expertise is involved, and prompt decisions add to operational efficiency. However, delegated authority only works effectively where: 

• the scope of authority is clearly documented  

• escalation thresholds are defined  

• reporting obligations exist; and  

• board oversight is maintained  

Problems arise when boards fail to clearly distinguish between advisory and delegated functions. 

Some organisations create committees that perform extensive review work, only for the board to revisit the same material in detail and effectively remake the decision. This adds process without improving scrutiny. 

Others allow committees to exercise substantial influence without sufficiently clear accountability boundaries or integration with management delegations. 

Management accountability still matters 

A committee – whether advisory or delegated – should not determine material matters without a formal management recommendation. Without this, management ownership becomes unclear, accountability for implementation weakens and committees risk becoming parallel management structures  

A sound governance framework preserves a clear accountability chain: 

1. management analyses and recommends  

2. the committee scrutinises and decides or recommends  

3. the board oversees the framework  

Committee authority should therefore operate as an overlay on management delegations – not as a substitute for them. 

A common governance weakness is designing committee and management delegations separately. When authority frameworks are not aligned, committees can become parallel approval channels rather than oversight mechanisms, blurring executive accountability. 

This risk is particularly relevant in tiered delegation structures where: 

• management approves lower-level matters  

• committees approve intermediate matters  

• the board approves major matters  

These structures only work effectively when each level operates within a single integrated delegation framework with clear escalation pathways and accountability boundaries. 

For example, some ASX-listed investment committee charters allow management to approve transactions within executive limits, committees to approve transactions up to higher thresholds, and the board to approve larger or strategically significant matters. 

Effective committees strengthen governance by applying deeper scrutiny, challenging recommendations where necessary and supporting informed board decision-making. 

What the cases establish 

Australian courts treat delegation as operationally legitimate but personally insufficient. The duty of care under s 180 attaches to each director individually and cannot be transferred to a committee or management. 

In ASIC v Healey [2011] FCA 717, directors who relied on the audit committee and management to review financial statements were found liable. The court held that reviewing and approving financial statements was within directors’ own competence – making reliance on others unreasonable regardless of the committee structure in place. 

In ASIC v Rich [2003] NSWSC 85, the court confirmed that reliance on a committee is only reasonable where the director has actively satisfied themselves there is no cause for concern. The obligation is to monitor, not to refrain from ignoring warning signs. 

In AWA Ltd v Daniels (1992) 7 ACSR 759, the court recognised that boards may legitimately divide labour through committees, but held that each director must maintain sufficient understanding of the organisation’s affairs to recognise when a delegated function is being performed inadequately. 

In Vrisakis v Australian Securities Commission (1993) 11 ACSR 162, the court confirmed that directors cannot rely on delegation where they knew, or ought reasonably to have known, that a delegated function was not being adequately performed. 

The consistent principle is that while delegation is a legitimate tool for organising board work, passive reliance on its outputs is never sufficient to discharge a director’s personal duty of care. 

Conclusion 

The question of whether board committees can make decisions is often treated as a matter of legal interpretation. In reality, the law is clear – they can. 

The more important question is how that authority is used in practice. 

Well-designed delegation frameworks allow committees to exercise genuine authority where it adds value, while maintaining clear lines of accountability between management, committees and the board. 

Ultimately, committees are not just advisory forums or administrative filters. Used well, they are a mechanism for structuring decision-making – enabling deeper scrutiny, clearer accountability and more efficient governance. 

The challenge for boards is not deciding whether committees can make decisions, but ensuring that when they do, it strengthens – rather than fragments – the overall governance system. 

Disclaimer: This article reflects the views of governance practitioners on the design and operation of committee and delegation frameworks. It is intended as general governance commentary and does not constitute legal advice, legal opinion or regulatory guidance. Organisations should obtain professional advice regarding their specific legal, regulatory and governance obligations.