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    The Nominating Committee Process: A Qualitative Examination...
    research summary posted July 17, 2015 by Jennifer M Mueller-Phillips, tagged 13.0 Governance, 13.01 Board/Audit Committee Composition, 13.06 Board/Audit Committee Processes 
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    Title:
    The Nominating Committee Process: A Qualitative Examination of Board Independence and Formalization.
    Practical Implications:

    The overall message of the interviews perhaps is best captured by one interviewee, who described a “strange little dance.” Throughout the interviews, the authors find evidence that the NC must “dance” through a complex decision landscape that includes potential CEO influence over the nomination process, consideration of formal versus informal processes, frequent previous ties between NC members and the CEO, a nearly pervasive focus on chemistry and comfort, and concerns about external legitimacy and board effectiveness. Such complexity offers the NC numerous opportunities to stumble or fall, and it demonstrates the need for multiple theoretical perspectives in interpreting the findings. Such complexity, or limited observability of NC-related outputs, also could serve to insulate the NC from scrutiny or regulation.

    Citation:

    Clune, R., Hermanson, D. R., Tompkins, J. G., & Ye, Z. 2014. The Nominating Committee Process: A Qualitative Examination of Board Independence and Formalization. Contemporary Accounting Research 31 (3): 748-786.

    Keywords:
    board of directors, CEOs, nominating committee, directors of corporations
    Purpose of the Study:

    This study examines the director nomination process employed by the nominating committee (NC), based on extensive interviews of U.S. public company NC members. The CEO’s influence over the director nomination process can range widely, from the CEO choosing the director candidates and using a mock search process, to the CEO being essentially uninvolved in a process that is handled independently by the NC. Likewise, the formality of the director nomination process can vary widely.

    The director nomination process is a setting where the characteristics of the board are established, and these characteristics have been examined in a growing body of accounting research. This study is designed to fill this void by examining the activities of corporate NCs, with particular focus on the director nomination process. In addition to providing insights for archival research examining director characteristics and offering implications for accounting practice and regulation, this study also extends the emerging interview-based accounting literature on board committee processes.

    Design/Method/ Approach:

    The authors interviewed 20 U.S. public company NC members to explore each company’s most recent outside director nomination process. Sixteen of the 20 interviewees were chairs of the committees, and all had been part of a recent director nomination process. The authors developed a 21-page interview script to guide the interviews with open-ended questions. The authors conducted the interviews from January through July of 2010, with nine of the interviews face-to-face and 11 via conference call.

    Findings:
    • There is continuing recognition of CEO influence in the director nomination process, the level of which varies widely by company.  
    • The interviewees’ perceptions of CEO influence range from very little influence to virtually total control of the process. 
    • Greater CEO influence over the director nomination process is associated with more experienced interviewees, retired individuals serving on the NC, and larger companies/NCs.
    • The authors find considerable variability in the formalization of the director nomination process. Some interviewees discuss using a matrix/grid approach to assess director skill sets across the board, while others do not mention the use of such tools.
    • Some NCs use search firms to facilitate the process, while others do not, instead leveraging their own contacts to identify director candidates.
    • Overall, some nomination processes reflect very formal, structured approaches, while others are relatively informal and organic.
    • It does not appear that CEO influence and process formality are associated.
    • Many interviewees have professional or personal ties to the CEO and that nearly all of the NCs focus on chemistry and comfort in the director nomination process, where the often-stated goal is to enhance the board’s ability to function effectively and to reduce risk in the director nomination process.
    Category:
    Governance
    Sub-category:
    Board/Audit Committee Composition, Board/Audit Committee Processes