A board of directors typically appoints a governance committee responsible for recruitment, onboarding, training, and director assessments. This committee may have responsibilities for compliance, risk, conflict matters, and other topics, too. The governance committee is one of the board’s three primary committees, along with the audit and compensation committees, and is required by the New York Stock Exchange.
The specific nature of the governance committee’s responsibilities are detailed in the committee charter. This document also outlines the committee’s make-up and how it operates, such as the minimum number of members and yearly meetings that it should have.
While I believe that the selection of a new director should be a decision by the entire board, the governance committee typically leads to the recruitment process. Often, an executive search firm assists in the recruiting process. Finding a new director requires assessing the sitting directors’ skills and what expertise may be missing or should be increased. Diversity can also be an important consideration. A detailed position specification should be prepared, including the calendar of meetings for the next 18 to 24 months; any candidate that has conflicts with the agreed schedule generally will not be considered. Candidates are contacted, and interviews are held. Ultimately, a decision is made.
In my view, it is important to remember that even a CEO who is also Chairman reports to the board of the directors. Therefore, while input on potential new directors should certainly be taken from the CEO, and the CEO should meet with director candidates, the independent directors should drive the director selection process and make the final choice.
Once a new director has been appointed to the board, the governance committee is tasked with orientation. The committee should ensure that any new director is given adequate information and access to the broad management team to understand the company well.
As outlined in one of my previous pieces, director evaluations should be conducted on an annual basis. This process should be noted in the charter and include assessing the board’s effectiveness in overseeing management, strategy, financial reporting, and compliance. I believe that individual directors and the overall board, and each committee, should be evaluated. The governance committee usually oversees this effort. The governance committee should also promote the continual development of board members, including director education programs.
A governance committee is important for various topics involving directors and often compliance, risk, and related issues. A well-functioning governance committee can have a very positive effect on the quality of a company’s governance.
Jonathan F. Foster
Founder & Managing Director – Current Capital Partners LLC