A nomination committee refers to a group of board members who are responsible for the corporate governance of an organization. Nominating committee members typically work to evaluate the characteristics and performance of board members and are responsible for selecting the best candidates for each seat on the board.
Who is Part of a Nomination Committee?
A nomination committee includes a chair – the person responsible for overseeing and managing the committee and its decisions. The role of the chair’s been traditionally held by the company’s chairman, but there is an increasing reliance on:
NEDs are directors that represent a majority shareholder but do not oversee the day-to-day management of the company.
Senior Independent Directors (SIDs)
SIDs are external directors with no link to the company but are hired for guidance.
Nomination committees usually comprise a mix of SIDs, NEDs, and senior directors that are part of the company’s board (e.g., the chairman). The individual assigned to the role of the committee chair is decided by the company.
Responsibilities of a Nomination Committee
The responsibilities of a nomination committee must be made clear in a document that outlines the role, as well as the processes that are to be followed in certain situations. Typical tasks a nomination committee is assigned with include:
1. Board recruitment and succession planning
Nomination committees are required to monitor executive recruitment closely in order to be aware of succession risks and opportunities presented by new board members. A failure to do so can result in catastrophic results for the company, due to the influence of board members.
2. Annual board evaluations
The nomination committee is responsible for an annual examination of the board’s competence in achieving the company’s objectives and alignment with the overall strategy, which allows them to make decisions on the future of the company.
3. Linking company strategy to recruitment
An emerging role of the nomination committee is to develop clarity over the company’s long-term strategy and make board recruitment decisions based on the needs of the company over several different time horizons.
4. Induction, training, and development of new directors
After completing the recruitment process, nomination committee members are responsible for informing the new directors about the company’s strategy, goals, culture, and management. Training is necessary for ensuring that the board members are apt for their roles in the company.
Although the above are the most common duties of a nomination committee, tasks can differ based on the company and its goals.
No specific guidelines exist on how a nomination committee should perform, but some of the best practices include:
1. Build a strong, qualified board and evaluate performances
A competent nomination committee should focus on building the board composition such that board members:
Have expertise and knowledge of the company and its operations
Come from diverse backgrounds
Prioritize ethics and integrity
Bring different skill sets to the table
2. Clearly define roles and responsibilities
The nomination committee should ideally establish clearly laid out roles and responsibilities for committee members, CEOs, executive officers, and management. It includes:
Developing position descriptions for new board members
Delegating responsibilities to appropriate executives
Separating the roles of the CEO, chairman, and other senior directors
The nomination committee is responsible for developing a framework to mitigate risks faced in the above areas and leading strategically to establish the company’s attitude towards risk.
4. Emphasize integrity and ethics in decision-making
Directors should disclose all conflicts of interest and refrain from voting when there is a conflict of interest. The nomination committee should ensure that there is a culture of integrity and ethical decision-making among the committee and board members.