Who Nominated The Nominating Committee?

Evaluating the Breadth of Responsibilities Within the Nominating Committee

(Originally appeared in the February 17th, 2021 'Across the Board' publication, a Board Director, Board Advisor, C-Level, and Business Leader publication reaching 26,500+ exceptional business leaders in over 70 countries with articles focused on leadership, strategy, and governance topics - sign up here)

The Nominating Committee is an extremely important entity within a functional Board due to its wide breadth of focus and responsibilities. In some cases, the Nominating Committee is combined with other important duties, as witnessed by common titles such as the Nominating & Governance Committee (NGC) or the Nominating & Remuneration (compensation) Committee (NRC). The majority of Nominating Committee responsibilities fit neatly in the category of Board effectiveness and include the duties of succession planning, Director recruiting, vetting and appointments, Director evaluations, and Director education. In the United States, and also in many other jurisdictions, the mandate for publicly listed company Boards to have an independent Nominating & Governance Committee (along with an independent Compensation Committee and an independent Audit Committee) made up of all Independent (Non-Executive) Directors exists. When we witness Boards deciding to combine some of these mandated committee responsibilities within the foundational Nominating Committee, this can legally be done due to common requirements language stating that a "Board may allocate these responsibilities [governance and/or remuneration] to committees of its own denomination, provided that committees are composed entirely of Independent Directors and have a charter."

As I wrote in my book as well as a February 2018 article titled 'The Camel Committees,' the general word ‘committee’has taken on an interesting and sometimes joke-like perception in recent times. It is frequently used to mock how slowly groups make decisions and what the muddled outcome will likely be once a mass of people all incorporate what they believe are their absolutely critical ideas. Dating back to 1952, the saying that, "a camel is a horse designed by a committee" even has its own Wiktionary page with the explanation, "[this is] an expression critical of committees - or by analogy, group decision-making - by emphasizing the ineffectiveness of incorporating too many conflicting opinions into a single project. In this figure of speech, the distinguishing features of a camel, such as its humps and poor temperament, are taken to be deformities that resulted from its poor design."

Comical, yes. Inaccurate, also yes, as a camel is uniquely adapted to its environment. ...But there is more than meets the eye with this explanation - supportive of the reasoning for creating smaller, more focused groups to effectively and efficiently work through challenges as well as proactive undertakings. "Board Committees are designed to serve the purpose of delegating important work of the entire Board, but in manageable portions and by appropriate skill sets, and they then make recommendations to the entire Board for final approval," states Ursuline Foley, an experienced Non-Executive Director serving multiple organizations. "Conversely, to have an entire Board work through all issues and endeavors creates a fractured environment that undermines the purpose of the Board by making it a tactical group instead of a primarily strategic oversight group."

Within most Boards, the Nominating Committee has historically had a large load of responsibilities, which has grown even larger in recent times. Although Board Director and CEO turnover commonly decreases during times of large-scale or global challenges (as witnessed once again during the COVID-19 period), other Nominating Committee responsibilities have more than filled the gap keeping members of these committees very busy. With all of these responsibilities housed within one committee, it begs the question, "who nominated the Nominating Committee" to simultaneously handle all of these important areas?

Let's first review the list of committee responsibilities. The many responsibilities of the Nominating Committee, Nominating & Governance Committee (NGC), and/or the Nomination & Remuneration Committee (NRC) include, but are not limited to:

Nominating & Performance:

• Board Member succession planning
• Director recruiting, vetting, and appointment
• Consideration and vetting of shareholder and management nominees for open Board positions
• Board / Director evaluations and self-evaluations
• Board Committee evaluations
• Overall Board structure, required expertise, and Board size
• Board / Director continuing education
• Board Director orientation and onboarding

+ Governance:

• Periodic review / recommendations of the organization's bylaws, charter, and policies on compliance and ethics matters
• Governance standards industry comparisons (when a dedicated Governance Committee is not in place)
• Evaluation of Environmental, Social, and Governance (ESG) considerations (commonly when a dedicated Governance Committee is not in place)
• Recommendations for Board Committee assignments
• Recommendations for Board Committee Chairpersons
• Recommendations for change of Board Committee functions and structures
• Responsibility for shareholder / stakeholder engagement and proposals
• Risk management and associated processes as they apply to non-financial or governance matters (commonly when a dedicated Risk Committee is not in place)
• Oversight of Business Continuity Planning (BCP) and Disaster Recovery Planning (DRP)

+ Remuneration:

• Recommendations regarding Board Director and CEO remuneration (pay / compensation)
• Evaluation of remuneration policies, models, and trending
• Evaluation of remuneration policies for Executive Officers and employees
• Performance assessment as it relates to remuneration received by each member of the Board of Directors

These significant responsibilities have a collective importance to the Board and can be challenging in their somewhat disparate skill set areas. For instance, it is rare to find a Board Director deeply skilled in executive compensation / remuneration while simultaneously having deep experience in formal governance or nominating best practices. Similarly, it is rare to find a Board Director deeply skilled in governance models while simultaneously having deep experience in compensation / remuneration. These known challenges require a Board's strict attention in appointing the right group of Board Members who not only bring important knowledge and skill sets to the committee, but also have the demeanor and understanding of the critical nature of integrating these areas within the committee - and act on it.

A Board's thought leadership in structuring the foundational Nominating Committee's total responsibilities is paramount to the success of the overall Board. Significant considerations to contemplate and deliberate include:

• Compliance with local / regional laws and disclosure requirements as they relate to required Board Committees as well as any allowed responsibility integration.
• Properly structuring the overall Board as well as all Board Committees, or as I like to say, properly 'architecting' your Board, is key to minimize risk while simultaneously elevating effectiveness and output.
• Consider how combining multiple responsibilities within one committee can either elevate or erode the committee's mission. In some cases, increased internal responsibility linkages will be beneficial. In other cases, additional internal linkages could impede output.
• Evaluate whether the increase in committee responsibilities requires a larger amount of committee members, and if so, will this undermine the ability of the committee to remain lean and able to accomplish base responsibilities more quickly? If not, is there a possibility of overloading existing committee members?
• Clearly define committee evaluation and effectiveness measurement criteria along with a repeatable and consistent schedule.

When building, reconstructing, evaluating, or measuring the Nominating Committee, or one of its denominations with additional responsibilities, be deliberate with the skills-matching exercise as well as the loading evaluation. What may seem manageable during times of normal operations could indeed be overwhelming during times of crisis. It is also a good practice prior to joining a Board for a Board Candidate to spend some time specifically researching how the Nominating Committee is structured and its overall effectiveness - this can tell you much about how the overall Board operates and also its efficiency.

Is your Board's Nominating Committee optimized?

Reach out directly to Mark A. Pfister to properly integrate your Board's Nominating Committee structure and processes with his Consulting & Advisory offerings, Board Director Coaching & Certification, and International Speaking Tour topics.

Mark A. Pfister - Non-Executive Director | CEO | Chief Board Consultant | Corporate Strategist | Board Macro-Influencer | Speaker | Author - www.PfisterStrategy.com

About the Author: In addition to serving on numerous Boards, Mark A. Pfister is a renowned Board Consultant, 'Board Macro-Influencer,' certified Board Director, speaker, author, and advises public, private, and nonprofit Boards in efficient and effective operations. Known as 'The Board Architect,' he is also the inventor of the 'Board as a Service' (BaaS) engagement model and an expert Project Executive frequently advising on strategic global initiatives in their initiation and operational phases...... << read full bio here >>

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