Are nomination committees doing a good job?

a nomination committee

Provision 17 of the UK Corporate Governance Code requires boards to establish a nomination committee to lead the process for appointments, ensure plans are in place for orderly succession to both the board and senior management positions and oversee the development of a diverse pipeline of succession.

Typically, best practice terms of reference for the nomination committee include, as its primary function, a requirement to monitor the balance of skills, knowledge, experience, independence and diversity (including gender) of the board and its committees, to ensure appropriate procedures are in place for the nomination, selection, training and evaluation of the directors and to ensure succession plans are established for the executive directors and senior management. Furthermore, provision 23 of the Code requires the annual report to describe the work of the nomination committee and includes quite an extensive list covering appointments, the board evaluation, the policy on diversity and inclusion and details of the gender balance of senior management and their direct reports. Despite this, in its Review of Corporate Governance Reporting published in November 2021, the FRC emphasises the generally poor reporting by nominations committees on succession planning, raising questions in its mind about not only board recruitment, but how companies’ methods support the development of a diverse pipeline.

When you reflect on the scope and responsibilities of the nomination committee, there is a compelling argument that the nomination committee is the most important committee of the board. It is charged with ensuring that the top team is the best the organisation deserves. The Code states that a successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company. Yet shareholders’ focus for many years now has been on the work of the remuneration committee and the audit committee. When does a nomination committee chair engage with shareholders on significant matters relating to that committee’s areas of responsibility? How often does a shareholder express the desire to dive deeply into the work of the committee as part of its regular catch-up?

In too many instances, the nomination committee is seen as the Cinderella at the party. It is not uncommon for meetings to be few in number and short (2 to 4 half hour meetings over the course of the year). Nomination committee agendas tend to be light, with few papers and rarely the appearance of any management or external presenters. Yet what the committee should be doing is building a top team within the organisation, aligned with its strategy, that is going to drive the business forward.

Ahead of a new year, now is the time for chairs and company secretaries to remind themselves of the responsibilities of the nomination committee and revisit the annual meeting calendar and forward agenda to make sure it really is fulfilling its remit as comprehensively as it should and as the organisation and shareholders deserve. Shareholders should, in turn, make enquiries about the work of the nomination committee when meeting with chairs and management. A good time to do this is as part of an annual governance update with company Chairs which we encourage shareholders to build into their annual engagement programmes.

At BE-GS, our extensive in the Boardroom experience can be applied to help chairs and their company secretaries determine whether the nomination committee is operating as effectively as it might, either as part of a three-yearly independent Board Effectiveness Review, or as a discrete exercise focusing on the nomination committee itself. Do please get in touch (at www.be-gs.com) if you would like to know more about our approach to Board Effectiveness Reviews or nomination committee evaluations.

About BE-GS

Mark Peters

With over 25 years’ in the Boardroom experience at both large and medium-sized listed companies, Mark has advised Chairs, Executive Directors, Board members and senior management on Board effectiveness specifically and on corporate governance, stock exchange and company law matters, more generally. His experience spans both UK and non-UK listed companies, working closely with Boards at times of significant structural change or crisis, including IPOs, finance-raisings, acquisitions, sales, and hostile takeovers. Mark has always regarded a key facet of his role as ensuring Boards are provided with the tools they need to operate both effectively and efficiently. Over the years, he has conducted many internal and external Board Effectiveness Reviews. Further information concerning Mark and his career can be found at www.be-gs.com.

Derek Woodward

Derek has more than 25 years’ FTSE100/250 in the Boardroom experience and has contributed significantly to improving Board effectiveness throughout his successful career as a company secretary. Working at senior level in international companies, including (from most recent) Worldpay, Thomas Cook, Zurich, B.A.T Industries and Eagle Star, Derek has a solid understanding of the challenges faced by Boards and their Committees, and the expectations of investors and other stakeholders. Throughout his career Derek has been the trusted advisor to Chairs, other individual Directors and has successfully managed strategic change including mergers, demergers, IPOs, business transformations and group-wide cultural change, as well as dealing with “business as usual” but nevertheless fundamentally important, activities. Further information concerning Derek and his career can be found at www.be-gs.com.

For more on board reporting, check out our Effective Board Reporting hub.

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