A look inside nominating and governance committees
As board responsibilities expand, there is a growing interest in the role of nominating and governance committees. We reviewed the committee charters and governance guidelines of publicly traded. Fortune 100 companies to see how these committees are defining their responsibilities and carrying out their leadership role regarding board governance, board effectiveness, director selection and board succession planning.
Governance practices are company specific, and this study is based on a review of committee responsibilities as codified in their governance documents. Some responsibilities commonly understood to be assigned to the nominating and governance committee instead may be formally assigned to the full board; the independent board chair, lead director or presiding director; or other committees.
What nominating and governance committees look like
The nominating and governance committee serves as the board’s voice on governance, shaping board and company governance policies and practices — and, by extension, how the company’s governance standards compare to peers and the broader market. The role and profile of the nominating and governance committee have expanded in recent years with the continuing rise in corporate-investor engagement and growing awareness of the need to address governance-related risks.
- Governance policies and practices. The committee is explicitly responsible for the board’s and company’s governance guidelines and policies (100% of reviewed committees). In some cases, committee responsibilities may extend to maintaining the company charter, bylaws and policies on ethics and compliance matters.
- Shareholder proposals and engagement. Forty-eight percent reference oversight of stakeholder focus areas, such as political spending and environmental sustainability.
- Risk management. Fifteen percent are specifically charged with oversight of the company’s reputation, as well as governance and non-financial risks, or have responsibilities regarding enterprise management risk, such as reviewing the company’s ERM process, business continuity plans, and strategy for workplace and product safety.
The nominating and governance committee plays a key role regarding board effectiveness through its work on performance evaluations, committee functionality and director education. These areas are increasingly in the spotlight as companies are challenged to navigate regulatory, technological, customer and workforce demographics, and business model disruptions.
- Performance evaluations. The committee generally leads or facilitates board evaluations (98%), typically on an annual basis. Most oversee board committee evaluations (70%), and some also oversee individual director evaluations (35%).
- Committee composition, function and structure. In connection with performance evaluations, the nominating and governance committee is positioned to drive or recommend for board approval committee assignments (90%), committee chair assignments (64%), and changes to committee structure and functions (59%).
- Director education. Fifty-one percent are tasked with oversight of, or providing for, director orientation and continuing education opportunities.
Director candidate selection
The nominating and governance committee also plays a critical role in board effectiveness by managing the board succession planning process and determining director selection criteria to provide for a boardroom with an appropriate mix of skills, expertise and perspectives. Investor expectations for enhanced disclosure have led to more voluntary disclosures on director qualifications and on their own roles and responsibilities with regard to board composition.
- Ability to represent long-term shareholder interests. Nineteen percent state that directors need to represent the interests of all shareholders and/or to focus on the long term. This speaks to growing questions by investors about a company’s long-term focus.
- Consideration of shareholder and management nominees. Fifty-nine percent reference consideration of shareholder candidates, including a couple mentions of proxy access. Sixteen percent reference candidate recommendations from management, with some stating that the committee is under no obligation to consider management-suggested nominees.
A nominating and governance committee that is proactive and engaged on key corporate governance and public policy developments affecting the company is the linchpin to board effectiveness — and can provide for an effective, experienced and dynamic board.
Questions for the nominating and governance committee to consider
- Is the board’s skills matrix aligned to the company’s going-forward strategy? Is this process dynamic and formalized?
- How is the committee ensuring that the educational needs of its directors are being met given ongoing industry disruption and convergence, which are resulting in changes to the company’s strategy and risk management?
- Is the committee structure still appropriate given the ever-expanding board agenda?
- Is “diversity” formally defined as including considerations such as age, gender, geography, skills, race or ethnicity?
- Does the board have a stakeholder engagement and communication policy? If so, is the policy and related responsibilities formalized in the company’s governance documents?