Boardroom: spotlight on the nominating committee

The nomination committee: there is no other committee of the board whose purpose and mission are so routinely and publicly expressed by management, yet whose strategic function is in greater need of reengineering in this age of increased regulation and risk management. There is also no committee of the board whose work will be more pivotal to assure shareholders of the long-range health, stability and growth of the enterprise.

Given the growing range of issues now competing for the board’s time and attention, it is the nominating committee that must drive and sustain a relentless focus on succession planning, provide effective oversight of executive talent development and recruitment, and provide for the smooth transition of directors onto and off the board.

As CEOs extol the productivity and profit-boosting potential of their ‘single biggest competitive advantage’ and largest intangible asset – their workforce – they concurrently set shareholder, employee and business partner expectations about their commitment to executive management development, recruiting, diversity and retention. It is the nominating committee’s responsibility, working with the corporate secretary, chief human resources (HR) officer and other senior executives, to qualify the authenticity of that ‘feel good’ mantra.

If effective CEO succession ranks among the board’s most essential responsibilities, so too must a continual assessment of succession, development and recruitment practices, risks and opportunities related to those who report directly to the CEO, who in many cases merit serious consideration as potential successors.

Otherwise, the nominating committee and individual board members risk significant reputational damage when a chief executive suddenly exits and a rushed, haphazardly engaged external search is commenced to find a successor whose name and reputation may placate shareholders, analysts and employees but whose cultural mismatch with the organization portends an eventual succession crisis.

The usual suspects
It is the introduction of ‘the usual suspects’ that most impedes the board’s search for fresh faces and new ideas, and impugns the efficacy of engaging leadership recruitment consultants. The homogeneity of CEO and board role specifications – influenced in part by new disclosure requirements regarding director qualifications – continues to emphasize exclusion from succession consideration rather than inclusion, leading many directors to bemoan a general lack of qualified talent, especially among women and minority candidates.

The continued emergence of the talent management function not only hints at the business potential of the oft-maligned HR function but also opens a new channel to inform the board nominating agenda and connect directors with the chief HR officer, corporate secretary and general counsel.

Succession risk management must be led and informed by each of these parties. The HR officer can be a valuable partner to the nominating committee, and the corporate secretary a facilitator of that relationship. Otherwise, public statements about the quality of management, nimbleness of the workforce and corporate commitment to diversity ring hollow.

The nominating committee must insert succession-oriented dialogue into the board’s periodic review of business operations and its oversight of business strategy. There may be no better predictor of business performance – and, indeed, board performance – than the nominating committee’s understanding of how the company is developing, recruiting, assessing and rewarding its management. That understanding helps inform and instruct the nominating committee’s CEO succession planning. It may also present new and emerging practices relating to the recruitment of new directors – the lifeblood of any board.

Returning to the scene
It is the nominating committee that faces the most significant risk and potential criticism if a lack of connectivity with current talent recruitment and development practices isn’t periodically reviewed and challenged. Because CEO succession is a potential flash point with shareholders, the nominating committee must take the lead in keeping the board continually focused on succession options. Otherwise, these issues surface only occasionally and/or tactically, or in immediate response to a succession crisis that neither the nominating committee nor the wider board saw coming.

That alone leads to reactive and defensive decision making, ceding too much influence to an external search process largely driven by how the recruitment of a particular star candidate will make up for the board’s lack of oversight and attention to the most critical of business sustainability and risk management issues.

Another problem is the continual avoidance of CEO succession discussions out of deference to the sitting chief executive. The best business leaders take an active interest in and help contribute to the succession dialogue concerning their own eventual transition, death or retirement; the others are simply too intimidated by such conversations. But one of the symptoms of the ‘go along to get along’ board can be seen when directors don’t regularly contemplate and discuss the succession implications of business strategy and their oversight of related governance matters.

Take directions
In order to multiply CEO and board succession options, minimize succession risks and optimize the recruiting process, consider this road map for reengineering the nominating process:

• The nominating committee must take ownership of the board’s due diligence regarding CEO and director succession by presenting regular reports at board meetings and institutionalizing its continuous input into the ongoing board agenda.
  
  
• The nominating committee must connect regularly and meaningfully with the chief HR officer to understand the development, recruitment and retention of those reporting to the CEO. The corporate secretary and general counsel may also bring considerable talent and succession practices, challenges and opportunities to the table.
  
  
• The CEO should be involved in succession discussions about his/her own role, but it is the nominating committee that must drive the process, ensure its objectivity and assume the lion’s share of responsibility for a smooth transition.
  
  
• The nominating committee must understand how external parties influence succession. It should keep the engagement of board assessment advisers separate from the engagement of board search consultants to ensure maximum objectivity.
  
  
• The nominating committee, working in partnership with the chief HR officer, must also align stated organizational diversity objectives with its own deliberations about executive management and board succession.
  
  
• The board and the nominating committee must make succession an ongoing focus, not a one-time event or one that is dusted off the board’s to-do list every three to five years.

In today’s global business climate, what you invest in most business decisions preordains the results you get from them. Increasingly, the board nominating committee’s own decisions about how it operates, who it interfaces with and the extent to which it allows external forces to influence its work says a lot about where a company and its board are heading in the future.