This article was written by Partner, John Mullins and Special Counsel, Juanita Maiden
Many organisations have in place Nominations Committees convened to assist in the election/appointment of directors and to provide guidance to members in voting for elected directors.
Having a Nominations Committee is one of the recommendations of the Australian Sports Commission Sports Governance Standards. However, the problem is that not all Nominations Committees operate the same way.
One critical aspect of a Nominations Committee is its makeup. We regularly see Nominations Committees solely made up of Board members or a majority of Board members. Effectively, what is happening in Nominations Committees structured this way is the Board (not the Members) determines who is on the Board.
The starting point is to ensure that a Nominations Committee is constitutional. That is, to ensure that the constitution of the organisation:
- permits the delegation of such authority from the Board to the Nominations Committee (either by express reference or via a clause allowing subcommittees to be formed generally); and
- any terms of reference for the Nominations Committee are consistent with the provisions of the constitution and do not go outside the authority granted by it.
Essentially, a Nominations Committee operates in three different ways in relation to elections:
- It reviews nominations from Members and determines which of those candidates can go forward for election and rejects other candidates.
- It reviews nominations from Members and allows all candidates to go forward but identifying those that go forward with the Nominations Committee’s endorsement, which can be equal to the number of vacancies or more than the number of vacancies.
- It reviews the candidates and only the number of candidates equal to the positions available goes forward and that candidate then needs to receive two thirds of the votes to be elected and if not elected, a casual vacancy is created and in most cases, the Board will appoint.
Most constitutions provide for elected Board members and appointed Board members. Surely, Members of the organisation are entitled to elect who they wish where the position is subject to an election, given the appointed directors are appointed by the Board (with the Nominations Committee having a role in those appointments).
The notion that Nominations Committees necessarily deliver better outcomes for Boards is without any conclusive evidence. There are numerous examples across Australian sport of Nominations Committees in national and state Bodies whose Boards have been fundamental failures. The notion that a Nominations Committee is necessarily superior to the Member’s views has not been proven.
The Nominations Committee can play a key role in ensuring good succession planning and effective Board composition, however, must not become a pseudo decision maker or act outside its constitutional parameters.