Nomination Committees and Corporate Governance: Lessons from Sweden and the UK

Abstract

While corporate boards, audit committees and remuneration committees have been subject to extensive analysis and research, one of the most important elements of corporate governance has been largely disregarded: the nomination committee.

This paper suggests that the nomination committee (NC) should be a primary focus of attention in corporate governance debates. The reason is that, if companies make the right initial appointments of board of directors then much else follows; if they do not then no other aspect of corporate governance – monitoring, measurement or incentives – can fully rectify the damage. Thus, the legitimacy of the NC in the eyes of the shareholder community and the trust received from minority shareholders is pivotal to the empowerment of the board. This is especially true in the context of institutional investors.

The paper draws on examples from the UK and Swedish model of the nomination committee. Whereas UK has an internal committee and a mainly dispersed shareholder base; Sweden by contrast, has an external committee and a block-holder governance regime. The article elaborates on the differences and their implication for the efficacy of the NC.

Arguing that there appears to be merits, but also critique, of both systems, the article ends reasoning that the way forward might be to combine elements of them. For example, some of the board positions could be nominated by external and other by internal committees. Alternatively, all appointments could be by internal committee as in the UK but with some external shareholder representation and, within both models, collaboration between external and internal parties can be encouraged to ensure the nomination of a cohesive team of directors.

Keywords: nomination committee; block holder; institutional investors; companies act