Nomination committee is an entity whose task is identification and nomination of the new director of the board. The committee sometimes facilitates the election of the new director by shareholders. When there are vacancies on board the role of the nomination committee is to evaluate the proportions of skills, experience, and knowledge to fill the gap. The nomination committee oversees the complete process of board appointments and communicates its observations to the board. The balance between executives and non - executives directors, the desirable size of the board, the skills and knowledge is considered by the committee. There is a growing need to attract board members from a diversity of backgrounds. The nomination committee should ensure objective criteria of board appointments, but the criteria should not unduly restrict a number of candidates(Z. Rezaee 2009, s.142).
There must be a charter specifying how the nomination committee identifies and selects the candidates for board membership. The committee should be the only entity who select headhunters and negotiate their salary. Moreover, many enterprises assign the responsibility for selecting new CEOs to the nomination committee. The committee chair the negotiations of the terms of a newly appointed CEO's employment agreement in cooperation with the compensation committee. Sometimes the nomination committee could be designated to setting director compensation, although many companies assign that job to the compensation committee. According to the New York Stock Exchange listing requirements, corporate governance is a part of the nomination committee's job. However, this aspect is not defined enough. The committee should facilitate the contact of the board of directors with shareholders, but at the same time, one common task given to this committee is assigning directors to other board committees (S. M. Brainbridge 2012, s.260).
The committee should be composed of at least three independent members- non- executive directors. It is the chairman or one of the directors who chair the committee. However, as regards the issue of a successor to the chairmanship, the chairman should not chair the nomination committee (P. M. M Collier, S. Agyei-Ampomah 2009, s.90).
Nomination committee responsibilities
In the literature, we can distinguish the tasks of the nomination committee (P.M.M. Collier, S. Agyei- Ampomah 2000, s.85):
- Identification and nomination of candidates for the board
- Evaluation of skills, experience, and knowledge in the existing board
- Preparing a characterization of capabilities required for the particular position
- Reviewing annually how much time non- executive director spends to fulfill their duties
- Concentration on a succession planning in the course of the nomination committee's work
- Considering expertise and skills that will be needed on the board in the future
- Reviewing regularly the size, composition, and structure of the board and especially the knowledge, skills, and experience of the board's members
- Reviewing executive and non- executive leadership needs including the continued ability of the organisation to compete effectively in the marketplace
- Preparing an annual report and a statement about activities inside the board
- Informing non- executive directors about expectations of the board on the appointment
- Abu Zraiq M. A. (2018), The impact of nomination and remuneration committee on corporate financial performance., "Academy of Accounting and Financial Studies Journal", volume 22
- Agyemang-Mintah P. (2015), The nomination committee and firm performance: an empirical investigation of UK financial institutions during the pre/post financial crisis., "Corporate Board: Role, Duties & Composition", volume 11
- Brainbridge S. M. (2012), Corporate Governance after the Financial Crisis, Oxford University Press, Oxford
- Collier P. M. M., Agyei-Ampomah S. (2008), CIMA Official Learning System Management Accounting Risk and Control Strategy, Elsevier, Oxford
- Lekvall P. (2008), Nomination Committees in Swedish Listed Companies, "International Corporate Governance Network"
- Rezaee Z. (2009), Corporate Governance and Ethics, John Wiley & Sons, Memphis
Author: Joanna Milowska