A Terms of Reference is a document that provides clarity for a decision-making body and the individuals involved. It can be created for anybody that could benefit from a clarification of structure and procedure, but is most frequently used for boards and committees. For a co-operative’s committee, a Terms of Reference should outline the composition of the committee, its assigned duties, guidelines for committee members, and clarity on its authority and relationship with the board. The document can serve as a reference for individuals to check to ensure they are following proper procedure and that their work aligns with their intended purpose.
A Terms of Reference should reflect the make-up and intention of the committee, but it will generally consist of at least five sections:
- Purpose: This section should state the purpose or mandate of the committee and outline its key objectives as set by the board.
- Structure: This section should outline the composition of the committee including number of people, how they are selected, and key roles within the committee (e.g. chair). The terms should also outline a process for replacing people or filling vacancies.
- Duties and responsibilities: This section should outline the specific tasks assigned to the committee by the board. This may include high-level directions, such as complying with the bylaws of the co-op, or focus on tangible goals, such as developing a recommendation when hiring staff.
- Code of conduct: This section should outline the expectations of the committee’s members in terms of professionalism, ethics, and performance. The section could also make provisions for dealing with conflicts of interest, administering discipline, conflict resolution, and required education or training.
- Confidentiality: This section should outline the expectations of members to preserve the confidentiality of sensitive information and the potential penalties of ignoring such expectations.
Additional sections may include provisions for meetings, conflict of interest, decision-making, procedure, removing members, reporting, and dissolution.
Creating a Terms of Reference
A Terms of Reference is typically created or approved at the discretion of the board and usually follows the election of a new board or creation of a new committee. A Terms of Reference should reflect the bylaws of the co-operative, but it does not require the same level of detail. Larger co-operatives might engage legal counsel to draft the terms, but this could can be done by a member of the board using a template or with proper advice. Further, changes to the Terms of Reference can be done by the board without consulting the membership.
It is important that there is consent from the board and the committee that the contents of the terms are representative of the intention of its creation and all individuals understand its purpose and their role. If there is ambiguity around the terms, individuals may not comply with its provisions and the committee may overextend its reach or deviate from its purpose.
Sample Terms of Reference for a Finance Committee
Sample Co-operative Finance Committee Terms of Reference
The objectives of the Finance Committee (the Committee) shall be to:
- Review the monthly financial reports of the Co-operative to ensure compliance with relevant laws and standard procedures.
- Make recommendations to the board on matters including:
- Selection of an auditor
- Setting an annual budget
- New policies related to finances
- Hiring the CFO
- Develop and maintain a financial policy to govern the Co-operative.
- Provide strategy as problems arise or new tasks are deferred to the committee by the board.
- The Committee shall be appointed, by general resolution, by the board.
- The Committee shall be comprised of no less than three members of the board including the treasurer.
- Each member of the committee shall serve on the committee until they are removed by a general resolution of the board, if they resign, or are no longer eligible to serve on the committee.
- The CEO and President shall sit on the Board as ex-officio directors.
- The board may appoint the chair of the committee or leave such a task to the committee members.
- The chair of the committee shall have a vote on all decisions made by the committee and in the event of a tie the motion will be defeated.
- The CEO shall appoint a member of the senior leadership team to serve as secretary for the committee.
- A vacancy on the committee may be filled by the Board by general resolution.
- Appointment to the board will be based on merit and interest, but preference will be given to individuals with a background in finance.
- Duties and Responsibilities
- Uphold rules and regulations set out in the Act and ensure the co-operative complies with generally accepted financial accounting practices. Recommend policies and procedures to the board that improve the financial management of the co-operative.
- Monitor and review the co-operative’s compensation plan.
- Make recommendations to the board for an auditor and prepare the Co-operative’s documents for an annual audit.
- Prepare the financial report for the annual meeting of the members.
- Maintain good records of all committee meetings and make decisions in a timely manner.
- Engage in annual planning to develop the recommended budget for the upcoming fiscal year.
- The Committee shall meet a minimum of four times per year, preferably quarterly, no less than three weeks before the board meeting.
- Additional meetings may be called by the Chair, any two of the committee members at any time, or the board, provided not less than two weeks’ notice is given.
- An agenda for the meeting and any other required materials will be provided to committee members not less than five days before the meeting.
- Rules for quorum for committee meetings and procedures for voting and recording information shall reflect the board’s, which are set out in the bylaws.
- In the event decisions must be made outside of a committee meeting, it may take place over e-mail. In this event, directors must clearly state if they are in favour or opposed to the motion. At the following board meeting the Chair will address the motion at which time it will be moved and seconded by committee members and recorded in the minutes of that meeting.
- Code of Conduct
- Committee members shall comply with all legal responsibilities assigned to them in the Act, the bylaws, generally accepted finance procedures, and provisions set out in these terms.
- Committee members shall uphold the highest standards of honesty and integrity while participating in committee meetings and any other activities of the Co-operative.
- Committee members shall educate themselves on good practices in finance, compliance, and reporting.
- Tasks assigned to the committee must be completed in a timely manner and may draw on the assistance of staff through the designated staff member on the committee.
- Committee members are expected to prepare for meetings and review all materials sent to them ahead of all meetings, so they can participate in discussion and make informed decisions.
- Decisions made by committee members should be made in the best interests of the Co-operative reflecting their fiduciary responsibility.
- The Chair will enter discussion with any committee member failing to meet the requirements assigned to them in the Act, the bylaws, and these terms to determine appropriate action.
- The committee and by extension its members shall not carry on business that is not provided in these terms or assigned to the committee by the board.
- All discussions at committee meetings shall be confidential and only disclosed to members or staff if approval has been granted by the committee. Committee members shall maintain the confidentiality of any records, materials, or discussions and guard against improper access.
- To determine what material is considered confidential, a committee member should raise the concern to the Chair of the committee or the board.