The Nomination Committee – Poor Relation?

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Many of us have been shocked at the “sexist macho culture” exposed in Boris Johnson’s Government by the Covid Inquiry.  I am proud of the way that the corporate world has cleaned up its act and that those types of environments are now rarely seen in the boardroom, but I suspect there is more to do.  With the focus on corporate governance reform in the UK, I would like to shine a light on the Nomination Committee (NomCo) and ask a few questions.

People strategies usually start with recruitment.  Attracting (and retaining) the best candidates is often seen as the first priority for a human resources team.  A headhunter receives 25% of the starting salary as a commission.  We know it’s that important to get it right.  It feels like NomCos are out of step with this. Shouldn’t the NomCo be the board committee with the most status, rather than what it is at present?

Instead, often the NomCo is staffed by NEDs who do not get paid an additional fee for this work, and are automatically expected to join the NomCo rather than being selected as suitable candidates.  Also, the NomCo is often chaired by the company chair.  Wouldn’t it be more appropriate to have a dedicated resource who doesn’t have to fit in NomCo tasks around the chairing of the company? I suggested this once on a LinkedIn forum and was challenged by two men who felt that it was a reasonable expectation of the chair that they should lead the NomCo as well. I suspect it wouldn’t be too difficult to persuade the chair that they already had enough to do, but backed away from making that point. From a practical perspective, for a listed company with a board of nine, an annual change of director will require considerable time dedicated to planning,  management, communication and induction.

The Corporate Governance Code requires recent and relevant financial experience, and, for the Audit Committee, competence relevant to the sector.  Recent and relevant people or recruitment experience might well be equally helpful for a NomCo chair.  As touched on earlier, the NomCo should, I believe, be a subset of appropriate individuals carefully selected for what they can contribute. Committees sometimes do only comprise three or four people and one well-intentioned, determined (but mistaken) person may have the potential to derail decision-making. Particularly if they are more interested in the other elements of their NED role and, let’s face it, board and committee papers are often extremely onerous.

Following on from the conclusions that (I think) most of us have drawn from the Covid Inquiry thus far, I’m interested in the statistics around how many women chair NomCos.  With thanks to Cranfield University’s excellent “The Female FTSE Board Report 2022” (the Cranfield Report) which shows the following in respect of FTSE 100 companies:

“The three mandatory committees are Remuneration, Audit and Nominations. Women chair 59% Remuneration committees, 27% Audit committees and 13% Nomination committees (traditionally chaired by the Chair of the Board).”

As you will expect by now, I’m disconcerted by the bracketed wording.  Not that it’s incorrect.  But we do spend a lot of time thinking about corporate governance.  Why hasn’t this tradition been addressed? Also, at that time, 18% of FTSE 100 companies were chaired by women and it was still only 13%.

It’s not all about women either.  Are we doing enough to develop the pipeline? I’m seeing the same faces doing the rounds of boardrooms.  Headhunters are very keen to propose people who already have NED experience.  Again, referencing the Cranfield Report, it quotes a Board Chair as saying “If you hire people in your own image, then don’t be surprised that all your decisions are the same all the time and in a rapidly moving world, you’re going to miss things.” Let’s nurture the pipeline and bring in new people.  What if the diversity rules required every listed board either to participate in a scheme such as Board Apprentice or to have one NED who has not been a NED for a company of a similar size before?  The concept is radical, and needs refinement, I acknowledge, but it’s a start.

We should also consider the current status of the Corporate Governance Code.  The changes proposed a swathe of new audit- and risk-focused guidance and regulation, partnering with The Companies (Strategic Report and Directors’ Report) Amendments 2023 (recently withdrawn from the legislative programme, branded as “burdensome legislation”).

Now that the proposed amendments to the Corporate Governance Code are in disarray, is it an opportune time to reconsider our approach? Possibly the same outcome (ie “Restoring trust in audit and corporate governance”) could be achieved by a rethink of how the optimum group people is in the room when decisions are made?

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