London, Friday 6 May 2016 – New research out today from EY and ICSA: The Governance Institute finds that nomination committees are no longer thinking only about upcoming board changes, but are now looking more deeply into the organisation, casting the net wider and thinking further ahead to identify and nurture top talent.
“Staff and skills retention are a business imperative and yet many executive pipelines have tended to be inadequate when it comes to providing a sustainable pool of talent,” says Mala Shah-Coulon an executive director in EY’s Corporate Governance team. “Given 63% of listed companies cite people-related risks including staff and skills retention as one of their principal risks, making it the second most common principal risk disclosed by boards (EY, Annual reporting in 2014: reflections of the past, direction for the future, September 2015), it is encouraging that we are starting to see a shift. Leading FTSE 350 companies are increasingly planning ahead for both emergency and ‘steady state’ situations, to prepare for unexpected board changes and to identify potential candidates several years out from taking on a board role.”
“While often portrayed as the poor relation of the audit committee and the remuneration committee, with a role that is less clearly defined and less high profile, the nomination committee is arguably the most important,” says Peter Swabey, Policy and Research Director at ICSA, the professional body for governance. “It plays a pivotal role in appointing directors to the board and, if the board lacks the right balance, knowledge, skills and attributes, the likelihood of it and its committees operating effectively is greatly reduced. Equally boards have a duty to secure the long-term health of the company and that is very much dependent on a strong executive pipeline from which future leaders can emerge.”
The report, Nomination committee: coming out of the shadows, is the result of a series of roundtable discussions with board chairmen, nomination committee chairmen and members, and company secretaries from over 40 listed companies (predominantly from the FTSE 350). The research found that nomination committees are currently functioning in a wide variety of ways dependent on the size of the company, the size of the board, the sector in which the company operates and the stage of its development. Overall though, many companies are looking at improving the way their nomination committees operate in the following areas:
- Boards, through their nomination committees, are increasingly seeking assurance that a good quality pipeline is in place and are challenging what the executive management team is doing to enhance it.
- Nomination committees are casting the net wider to identify potential directors, which reflects a growing awareness of the benefits of, and demand for, increased diversity and changes in the skill sets needed at board level.
- Boards are looking further ahead when developing their long-term strategies, in order to anticipate the skills and resources needed both in the boardroom and in senior management to deliver on that strategy.
The report sets out a number of recommendations and considerations for boards and their nomination committees including: looking across the market to identify four or five potential successors to the CEO; having open conversations about future career plans in order to sequence board succession; and challenging head-hunters to look beyond the ‘usual suspects’.
Mala Shah-Coulon concludes: “Although there isn’t a regulatory trigger for the nomination committee’s activity, in the same way as there is for the other board committees, its work should be coordinated with existing board discussions about company strategy, board evaluations and succession planning. This should be part of ‘business as usual’.”
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For further information, please contact:
- Maria Brookes, Media Relations Manager: mbrookes@icsa.org.uk / +44 (0)20 7612 7072 / +44 (0)7890 649 143
- Rosanna Lander, EY Deputy Head of Media Relations, UK: rlander@uk.ey.com / +44 (0)20 79516430 / +44 (0)7952 351018
Notes to Editors:
- ICSA: The Governance Institute is the professional body for governance. We have members in all sectors and are required by our Royal Charter to lead ‘effective governance and efficient administration of commerce, industry and public affairs’. With 125 years’ experience, we work with regulators and policy makers to champion high standards of governance and provide qualifications, training and guidance.
Website: www.icsa.org.uk - EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over.
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