Today’s nominating & governance committees are under the gun as shareholders continue to prioritize board effectiveness. Specifically, today’s institutional investors want to ensure that the right people are sitting around the board table in order to see the company through its strategy for long-term growth.
It’s our key area of focus—this issue of board quality—because shareholders depend on boards to protect their interests in conversations we’re never going to be a part of. We see diversity as a component of that conversation around board quality…
– Michelle Edkins, Global Head of Investment Stewardship, BlackRock
Indeed, as passive index investing continues to grow, the lifespan of today’s companies is shrinking. Disruptive technologies, emerging risks and new market entrants are usurping legacy companies that fail to innovate fast enough. This pace of change requires a diverse range of board skill sets and necessitates that boards are operating at peak performance; this charge begins with the nominating and governance committee.
Role of the Nominating & Governance Committee
Sometimes called the “nomination committee” or the “governance committee” or a combination of the two, the key responsibilities of the nominating and governance committee include shaping governance policies, planning for board and committee succession, recruiting and onboarding new directors, and driving board effectiveness through evaluations and education (often among many others).
In its most foundational duties, this committee is responsible for driving board effectiveness. Under this board governance umbrella, the nominating and governance committee may maintain board and company charters, influence policies on ethics/compliance, and even take on advancing ESG challenges.
Shareholder engagement (and the policies surrounding investors) are also increasingly falling under this committee’s purview. Overseeing shareholder communication, whether through the proxy statement or investor proposals, is commonly a responsibility for the nominating and governance committee, especially with the heightened focus on shareholder relations as of late.
Measuring Board Performance
The board assessment process is typically powered by the nominating and governance committee in conjunction with board leadership. Generally, board assessments (also called board evaluations) are conducted each year with alternating focus on the board, committee, and individual level. When executed effectively, the board assessment process can reveal critical skills gaps and provide powerful insights that inform board education priorities and the succession planning process, which is among this committee’s core responsibilities.
Leading Succession Planning & Board Recruitment
As companies navigate digital transformation, battle cyber threats, and market to a new generation of consumers, boards are finding that they need a diverse set of skills around the board table. Nominating and governance committees oversee the board succession planning process, typically with the help of a skills matrix to visualize alignment and gaps. In a recent peer exchange hosted by Diligent, a group of nominating and governance committee chairs considered it largely their responsibility to “drive diversity efforts” and “unearth new talent for boards to consider.”
Aligning with Long-Term Strategy
Uncovering new talent—and then recruiting and onboarding new directors—comes with many challenges, which we discuss on our Board Succession Planning page. Yet, it’s also important for nominating and governance committees to be reporting back to their investors: Here’s how we’re approaching board composition, and here’s how that aligns with our long-term strategy. In Guide to Effective Proxies, Donnelley Financial Solutions demonstrates how industry leaders are communicating board composition within the proxy statement.
The success of today’s nominating and governance committees requires having the right information at the right time. They must have visibility into the same data their investors have, and they must have access to tools that put director searches at their fingertips.
Equip Your Nominating & Governance Committee with the Right Tools
How does your board composition compare to your peers? What skill sets is the board lacking? What conflicts of interest might your investors have uncovered? Quick access to information helps board members identify governance red flags raised by shareholders and activists. Click here to learn how Diligent’s Nomination & Governance module is driving these types of insights.