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:
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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 EY, Annual reporting in 2014: reflections of the past, direction for the future, September 2015