Nominating and governance committees take spotlight, EY finds
Nominating and governance committees are taking leadership roles with regard to board governance, effectiveness and assessment, as well as director selection and board succession planning, according to new research from EY.
EY’s Center for Board Matters reviewed the committee charters and governance guidelines of publicly traded Fortune 100 companies to assess how companies are defining the responsibilities of their nominating and governance committees.
‘We’re seeing the start of a sharp focus on the work of the nominating and governance committee,’ Kellie Huennekens, associate director at the EY center, tells Corporate Secretary. ‘After Sarbanes-Oxley, we saw a lot of focus on the audit committees and that continues to grow, but we’re seeing a gradual shift in attention to the work of the nominating and governance committees.’
While every Fortune 100 company’s nominating and governance committee is responsible for the corporate governance policies of the board and the firm, almost half (48 percent) are also overseeing key stakeholder communications, according to the EY report. That can include proxy filings, reporting on corporate governance principles and overseeing responses to shareholder proposals. Fifteen percent of nominating and governance committees also have oversight of their company’s reputational, governance and non-financial risk management, according to the report.
‘Today and certainly going forward these committees need to keep track of developments in corporate governance in terms of shareholders and company stakeholder expectations,’ Huennekens says.
According to the study, 38 percent of Fortune 100 companies explicitly state that directors should not expect to be renominated annually if they’re underperforming. Meanwhile, at 70 percent of companies, the nominating and governance committee is responsible for evaluating the entire board’s performance, though just one third oversee individual director evaluations.
‘There’s a big cultural shift under way where directors are told their service is related to their performance and company strategy – both where it is now and how it is moving forward,’ Huennekens says. ‘Part of the enhanced focus and importance of board assessment is evident through vehicles such as proxy statement filings where you’re seeing disclosure on key topics that were discussed during the board performance evaluation.’
Half of the Fortune 100’s nominating and governance committees are also responsible for director orientation and continuing education opportunities, the study finds.
EY’s report states that shareholders are placing more pressure on companies to disclose director’s skills, backgrounds, roles and responsibilities. As a result, more companies are volunteering this information in their governance documents.For instance, 38 percent of the Fortune 100 now disclose their board composition in governance documents, noting the gender, age and ethnicity of company directors, according to the study.
Goldman Sachs (CorporateSecretary.com, 2/10) and Korn Ferry (CorporateSecretary.com, 2/10) – winners of the awards for best proxy statement (large cap) and best proxy statement (small to mid-cap), respectively, at Corporate Secretary’s 2016 Corporate Governance Awards – were praised by the judges for defining what diversity means to them, including director headshots and providing a matrix of directors’ skills, experience and committee memberships.
EY’s research finds that the average chair of a nominating and governance committee at Fortune 100, S&P 500 and S&P 400 companies is 65 years old. At S&P 600 companies, the average age of a chair is slightly lower, at 62. The average age of nominating and governance committees’ total membership across all four indices is 62 years old.
Women make up just one third (34 percent) of the chairs of the Fortune 100, and roughly one fifth of the chairs in the S&P 500 (23 percent). In the S&P 400 they represent 18 percent of chairs, and in the S&P 600, 17 percent.