The Role of the Nom/Gov Committee

Nicholas J Price
5 min read
Effective succession planning is vital to the long-term success of a company. It's a crucial link between succession planning, strategy and the culture of a company.

The scope of a nom/gov committee isn't well-defined. Companies have the ability to form their own rules and practices, which is a good thing because it allows them the ability to customize their practices according to the needs of the company.

Nominating and governance committees play an important role in selecting candidates for board appointments. Currently, there's a heavier than ever focus on corporate governance, with an eye on developing the right balance, knowledge, skills and attributes that every board needs. The efforts of the nominating and governance committee strongly contribute to the quality of the board and its other board committees.

The Role of the Nom/Gov Committee

A 2016 report on how companies view their nominating and governance committees showed some interesting statistics.

About 63% of the companies surveyed reported that they considered risks related to their staff and their skills as one of their topmost concerning risks. In fact, it was the second most common risk that boards mentioned. Only 35% of the company secretaries stated that they felt their executive pipeline has a sustainable pool of talent.

As boards recognize the importance of working harder on board composition and succession planning, other priorities tend to take precedence over the nominating committee's expectations. With no regulatory trigger for nominating committee requirements, boards are left to manage these tasks on their own. EY recommends that nominating and governance committees focus more heavily on better reporting rather than on more frequent reporting.

The lack of regulatory requirements also means that boards should clarify what they expect from their nominating and governance committees, including their activities and the processes to carry them out. For example, boards may set up the charter for their nominating and governance committees to manage board director succession planning, senior management succession planning, or both.

Nominating and governance committees should coordinate their efforts on director recruitment with existing board discussions related to the company's strategy, board evaluations and succession planning. The board's future needs may well be different than its current needs; this makes it important to consider the types of skills that future boards will need to run a successful company.

Annual self-evaluations are a valuable tool, whether they're required or not. The results will indicate whether the board is moving in the right direction with their composition or whether they need to make some changes. Self-evaluations may also indicate that the board needs to make changes in board orientation or training and development.

Identifying and Developing Future Leaders

It's a difficult and precarious task for nominating and governance committees to fill the CEO role, especially if the existing CEO continues to be employed. There are obvious sensitivities with which to contend. The importance of the position also places much concern over getting it right because of concerns over failure.

For these reasons, nominating and governance committees need to monitor risks and opportunities closely. Some companies make a practice of giving the board an annual presentation of the top talent in the company to help the board assess whether the top candidates are developing at the proper rate to be considered for the position of CEO. In assessing talent, the committee needs to assess whether candidates are ready now, what they need to be ready and whether they can be ready. The committee may also decide to move a candidate into a different position so they can gain the necessary skills to put them in a CEO contender position.

Ultimately, nominating and governance committees should be looking across the market and within the company to identify four or five candidates for the CEO position.

Seeking Board Directors in All the Right Places

The corporate markets are undergoing more change than ever before in their history. In their quest for the best candidates, committees will need to identify gaps in skills in the current board and future boards. This step requires them to look at a wider pool of candidates. A skills matrix is a valuable tool to help identify longer-term and emergency successors. Boards may opt to look for board director candidates who have specific skills, as well as other skills across a broad range of issues.

Personal attributes, such as their character and whether they'll fit in well with the dynamics of the rest of the board, are also valid considerations. Board directors need to be team players.

Diversity is a major component of good corporate governance. In addition to looking at skill sets, boards should find some balance within their board director ranks that considers gender, ethnicity and international diversity if the companies work across different markets.

Another consideration that many committees overlook is to seek potential within candidates who haven't served on a board of directors before. They may have the skills to perform a stellar job with the help of a mentor.

Headhunters are another resource that committees can use to look for candidates who are out of their purview. When using headhunters, be clear and unambiguous in what you ask for. Challenge the representative to look beyond the usual cast of board director candidates. If boards need certain skill sets, an alternative is for committees to set up an advisory board so they can access niche skill sets.

Taking a Long-Term Approach to Succession Planning

Since most experts recommend taking a long-term approach to succession planning, board management software is a valuable tool in all nominating and governance committee activities. A board portal offers a secure platform for storing and sharing resumes. Committee members can make notes and annotations directly on the resumes and choose to share their comments or not. The portal will also help them keep track of which board terms are ending so they can plan for it ahead of time.

Another valuable feature of board management software is having the ability to set user permissions so that current CEOs and others have no access to what the committee is working on until they're ready to reveal it.

Effective succession planning is vital to the long-term success of a company. It's a crucial link between succession planning, strategy and the culture of a company. Board management software by Diligent can make the task faster and more productive.