Risks

1. Risk of Poor Governance Culture

Poor corporate governance can be very expensive, and sound governance can result in high rewards. A key risk for a firm is to not take its corporate governance seriously or to approach it in a low-effort and low-cost way. A poor Nominating and Governance Committee robs the board of governance leadership and hence a culture of excellence with its board operations.

2. Risk of Poor Board Composition

Major decisions can either undo or define a corporation's success. We all understand that bad decisions can come from bad information. We also need to understand that bad decisions can come from having a board composed of weak members or who engage in suboptimal decision-making processes. Through its director nominating responsibilities, the Nominating and Governance Committee is the gatekeeper to each person who occupies a board seat. When the committee makes nominations in an ad hoc manner, they risk handicapping the board for years to come with the unqualified directors. As one chair of a publicly traded firm told me, “Talent dictates the future of the company. If you have the right people, then everything else falls into place. If you don’t, then this results in the wrong culture.”

3. Risk of Ineffective Governance Processes

Some boards do not understand their duties or roles and as a result engage in poor processes that do not fulfill their responsibilities. In short, ignorance can not only result in poor governance, but also rob the firm of any semblance of corporate governance. A firm operating without an effective board can be likened to driving without a seatbelt or rearview mirror – it is both shortsighted and imprudent.

Opportunities

1. Opportunity for Excellence in Corporate Governance

In the increasingly competitive global arena, no company can afford to forego excellence in any aspect of its operations. While the result of poor corporate governance (Enron) is often observable, the result of excellent governance may go unnoticed. For example, no major articles would have been written about the Titanic had the captain read the weather maps and taken a more prudent route to avoid the icebergs. Every firm has a significant opportunity to assess the state of its corporate governance and to use this assessment as a benchmark to either confirm or pursue excellence (an in-depth form of this assessment is known as a corporate governance audit). The Nominating and Governance Committee should ensure the excellence of its board and committee operations.

2. Opportunity to Evaluate and Ensure Optimal Board Composition

A crucial responsibility of the Nominating and Governance Committee is choosing candidates for board membership. It is therefore extremely important to examine how the committee makes decisions about existing board members and in nominating new ones. Is the committee adopting best practices? What is it doing well or not so well in creating an effective board?

3.  Opportunity for Board Education

Boards can benefit tremendously from governance education. Such education can vary from customized in-house sessions on various governance topics to attendance at governance conferences such as those hosted by the National Association of Corporate Directors. An effective Nominating and Governance Committee will be deliberate in proposing a board education policy and a process to determine the educational needs of the whole board, its committees and individual directors.