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Nomination committees no longer the poor relation?

Nomination committees have been the poor relation of board committees, according to advisory firm, Ernst & Young (EY). However this appears to be changing as companies adapt to demands for a more professional approach to director recruitment and to scrutiny about board diversity and effectiveness.

In The nomination committee — coming out of the shadows published by EY and ICSA the authors wrote, “While its role may be less clearly defined than that of the audit committee, and its profile lower than that of the remuneration committee, it is arguably the most important of the three. It plays a pivotal role in appointing directors to the board and, if the board lacks the right balance, knowledge, skills and attributes, the likelihood of it and its committees operating effectively is greatly reduced.”

The report is based on a series of roundtable discussions held with board chairmen, nomination committee chairmen and members, and company secretaries from over 40 listed companies (predominantly from the FTSE 350). These events found that the nomination committees were working in a range of ways depending on the size of company, the sector, the size of board and how developed the committee was.

However, the authors stated that many of the representatives told EY that their companies were expanding the role of their nomination committee, as well as adopting a more professional approach to the recruitment and selection of candidates. They were keen not only to share their experiences, EY said, but also to learn how others were addressing these issues and identify ideas that might be useful for their own committee.

The discussions found that many nomination committees are looking at executive appointments below board level and seeking to understand the management of talent in the organisation. The report states that, “As is always the case with the board and board committees, NEDs (non-executive director) need to achieve balance in their role – providing oversight of management activity, rather than being involved themselves in the management of the talent pipeline. ” Developing executives so that they are ready to serve on the company board is a challenge for companies but an accepted approach now is for executives to be encouraged to become non-executive directors of other organisations – either of another listed company or on charitable boards. However, with the role of non-executive directors becoming more onerous it is becoming harder for executive directors to also be a NED.

Recruiting NEDs has also become more challenging with a focus on achieving more diversity on boards and when an international business needs to recruit board members from a range of nationalities. The report stated, “While we heard how having a wide variety of nationalities on a board can be challenging for the chairman due to their different approaches and business cultures, in our view, these are challenges worth overcoming in pursuit of board effectiveness.”  Finding NEDs with a broad range of skills can also be difficult , although  “Companies also accept that there are limitations on the skills and personal qualities that single board members can be expected to offer.”

Headhunters and recruitment agencies are frequently used to find candidates as companies know that they need to look beyond a pool of known experienced directors. The attendees at the round tables emphasised “the importance of briefing headhunters in a clear and unambiguous manner. It was felt that when chairmen and company secretaries challenge headhunters to provide a more diverse list of candidates and are specific about the skills and attributes required, they often receive a better long list of candidates.”

In the recently published Inquiry into fairness, transparency and diversity in FTSE 350 board appointments produced by the Equality and Human Rights Commission it had recommended that board appointments should be openly advertised however EY found distrust of this approach as there was a suggestion that the type of people who might apply were unlikely to be the right people although the Centre for Public Appointments has indicated that it has not received large numbers of applications from inappropriate individuals, EY said.

The Equality and Human Rights Commission also suggested that you could widen the candidate pool for board roles by considering suitably qualified individuals from outside the FTSE 350, such as the professions, the not-for-profit and public sectors, and academia.

What do you think?