“Keep true, never be ashamed of doing right, decide on what you think is right and stick to it”. — George Eliot
Following up on my previous article:
Evaluation of the Audit Committee’s Performance
At least annually, the board should conduct an evaluation of its performance and the performance of each committee and each individual director. The Audit Committee, in conjunction with the board, should develop a formal and rigorous assessment process. This may include interviews with the member being assessed, self-assessment and/or peer assessment of members against pre-set criteria. Performance should be reviewed by evaluating each member’s work, his/ her attendance in committee meetings, discussions and constructive involvement in decision making. Assessment can be performed by the committee itself (through a self-assessment questionnaire) or can be undertaken by any other committee of the board.
The human element represented by the directors and senior executives is mostly the major cause of financial failures. Various researches and studies have shown that the improper selection of directors and executive management of a company largely contributes to the problems that these companies face. Researchers have also concluded that the structure of any board of directors in terms of the quality and competency of its members, and the mix of executive, non-executive and independent directors has considerable impact upon the success or failure of a company.
Thus the corporate governance codes around the world strongly advocate a formal mechanism of selecting board and executive management members and their performance review. A company must have rigorous procedures for the appointment, training, and evaluation of the board. Boards may delegate the responsibility to a nominating committee to provide in-depth assistance in matters related to board level recruitment and performance assessment. This allows the board to focus on strategic and operational matters. The key task of the nominating committee is to ensure that a company hires and retains the best available executives and non-executive directors. In many cases, a nominating committee is tasked by the board to identify suitable candidates for key management positions.
Duties and Responsibilities of the Nominating Committee
Nominating committees are usually responsible to perform the following duties:
· Establish skills, qualification and experience required of the board members.
· Identify persons qualified to become members of the board of directors or Chief Executive Officer, Chief Financial Officer, Corporate Secretary and any other officers of the company considered appropriate by the board. This excludes the appointment of internal auditor which is the responsibility of audit committee.
· Make recommendations to the whole board of directors including recommendations of candidate for board membership. The recommendations should be included by the board on agenda for the next annual shareholders’ meeting.
· Oversee the arrangement of induction and re-election of board members.
· Review board structure, its composition and develop a succession plan for board members and the executive management.
· Assist with the training of directors.
· Evaluate, on a regular basis, the performance of directors and communicate the outcome to the board and make recommendations for improvement.
· The Nominating Committee may also be charged with the responsibility to oversee the company’s corporate governance guidelines. If so, the Committee should develop and recommend to the board corporate governance guidelines of the company and should review those guidelines at least once a year.
Appointment of Directors
Appointment of directors and company’s senior management is an extremely important process since the quality and competencies of these officers go a long way in determining the effectiveness of the board and company. Three main factors should be assessed while a person is reviewed for candidature as director of the board and member of senior management team, see below figure.
This article will be continued in the next part of this column.
Hubert Rampersad is president at Business School of the Americas. This column is drawn from his new book “Authentic Governance; Aligning Personal Governance with Corporate Governance” (Hubert Rampersad & Saleh Hussain, Springer USA, New York, 2013). He can be reached at firstname.lastname@example.org ; www.tps-international.com | His books http://bit.ly/TZhAxq | His interviews in BusinessWeek & Fortune Magazine http://bit.ly/V8EcSW | His You Tube Video http://youtu.be/tLeY5SWxqj8
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