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Nomination Committee

A group of board members who are responsible for the corporate governance of an organization

What is a Nomination Committee?

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.

 

Nomination Committee

 

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:

 

  • Non-Executive Directors (NEDS)

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.

 

Best Practices

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

 

3. Engage in effective risk management

Identify and assess risks related to:

  • Company finances
  • Operations
  • Legal and political environment
  • Industry-related changes

 

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.

 

Examples of Nomination Committees

 

Apple:

  • Susan Wagner (chair of the committee)
  • Albert A. Gore Jr.
  • Andrea Jung

 

Microsoft:

  • John Thompson (chair of the committee)
  • Teri List-Stoll
  • Sandra Peterson
  • Charles Scharf

 

Additional Resources

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Board of Advisors
  • Extraordinary General Meeting (EGM)
  • Nominated Advisor
  • Business Ethics

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