Boards can delegate some of their functions to individuals or committees, unless the company’s constitution provides otherwise. Good governance is where a company outlines the carrying out of a delegated function by producing clear remits and terms of reference for the delegated party and requiring committee reports.
Directors ultimately have responsibility for the actions of any delegates and are liable for the misconduct of delegates or delegated committees, unless it can be established that the directors believed the delegate would exercise their power in accordance with the rules stipulated for them and that the delegate was reliable and competent.
There are limitations on delegation. Common law dictates that directors cannot delegate their core functions, including for example, approval of the company’s annual financial reports. The Corporations Act also limits directors from relying solely on the advice of delegates or other parties, requiring directors to assess information or advice independently before they can rely on this.