The Nomination Committee: Follower or Leader

17 July 2009 by Virginia Bottomley, Aine Hurley, Colin Wall

Strong committees are a vital part of making boards more effective. Over the past decade or so, as the workload of boards have increased and their decision‐making come under greater scrutiny, committees have played an important role in overseeing specific areas of responsibility, developing recommendations for consideration by the full board, and reinforcing the independent supervision of management.

The audit committee has been at the forefront of reform, subject to its own best practice enquiry, led by Sir Robert Smith, which reported in 2003. Remuneration committees have also been constantly in the spotlight as they seek to devise pay packages that meet the demands of both executive managers and shareholders.

Against this background, boards must guard against viewing the nomination committees as the ‘poor relation’ of the various board committees. Sir Derek Higgs, in his 2003 review of the effectiveness of non‐executive directors, argued that the nomination committee is “the least developed of the board’ committees, usually meeting irregularly and often without a clear understanding of the extent of its role in the appointment process.”He also found that many nomination committees met with directors present who were not committee members, making the committee indistinct from the board as a whole.

Finally, Sir Derek reported finding a high level of informality surrounding the process of appointing non‐executive directors, with almost half of the nonexecutive directors surveyed for his review recruited to their role through personal contacts or friendships –only four per cent had had a formal interview, and one per cent had obtained their job through answering an advertisement.

Although the nomination process has been greatly professionalised in the six years since Sir Derek reported, it remains the case that nomination committees typically meet less often than their audit and remuneration counterparts, and their work is described only briefly in the annual report.

This state of affairs, however, disguises the fact that nomination committees have a critical role to play in maximising board effectiveness, succession planning and managing contingencies. Getting the right, best qualified people to serve on the board is at the heart of good governance, and the nomination committee is central to putting that principle into practice.

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