In May 2016, the Institute of Chartered Secretaries and Administrators (ICSA) published a joint report with Ernst & Young which considers the role of the nomination committee. The report notes that, while the nomination committee’s role may be less clearly defined than that of the audit committee, and its profile lower than that of the remuneration committee, it is arguably the most important of the three. 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.
ICSA and Ernst & Young sought to find out what happens in nomination committees and boardrooms through 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) throughout February and March 2016. Many of the representatives said their companies were expanding the role of their nomination committee, as well as adopting a more professional approach to the recruitment and selection of candidates. The representatives were keen not only to share their experiences, but also to learn how others were addressing these issues and identify ideas that might be useful for their own committee.
The report considers the nomination committee’s role, its membership and its reporting in the annual report, and it sets out a number of points for boards and nomination committees to consider, including:
- What the appropriate role of the committee should be, e.g., whether the committee should look at executive talent if it does not already do so, and whether the board would benefit from combining the committee into a nomination and governance committee.
- Whether the following processes are clearly linked: the discussion of current board composition and future composition in light of the company’s strategy, the executive and senior talent succession planning and company strategy, the outcome of the board evaluation exercise and board succession plans, and the link between board evaluations and development and training plans.
- The existence of a two-pronged approach to identify succession plans in both emergency and steady-state situations.
The report then considers executive succession and the talent pipeline, as well as executive development and suggests points for the board and nomination committee to consider include:
- The extent to which nomination committee looks across the market and internally to identify four or five potential successors to the CEO.
- How deeply into the organisation the committee should be looking to identify future talent.
- The best way to develop the skills of future executive leaders in the business.
The report includes a section on the search for non-executive directors, looking at specific skill sets and personal attributes and then at preparation for future challenges, including linking longer-term strategy to succession plans and having open conversations.
The report concludes with a list of questions for boards and nomination committees to consider.
(ICSA/Ernst & Young, The Nomination Committee – Coming out of the Shadows, 05.16)