Why Governance Committees Need to Get Smarter

Following the Sarbanes-Oxley Act of 2002, the audit committees of boards of directors got much stronger. In effect, they took over their companies' financial disclosure process. Compensation committees now are under big pressure to get a grip on CEO and overall executive compensation, and they appear to be responding.

But nominating and governance committees, which are often combined into one body, have remained a backwater.

Now it's becoming increasingly crucial that they step up and take responsibility for board composition and for board performance. CEOs have been largely sidelined in these crucial regards. They may play an informal, advisory role, but the nominating/governnance committee is in the driver's seat. This committee must now:

• Assess whether board members possess the right skill sets -- as the company's strategic direction, technological position and competitive posture undergo shifts. If the company wants to enhance its global position, it needs globally experienced director. If it wants to expand into the financial sector, as Hewlett-Packard does, then it needs a banker on its board. Long gone are the days when boards can consist of old pals; now, functional expertise is essential.
• Conduct performance reviews of the board as a whole and of individual directors. This is hard because most boards function on the basis of collegiality among peers. But some directors may seek to dominate meetings while others may not have read their briefing materials. In the worst cases, they hop on their Blackberry's in the middle of meetings. The nominaging/governance committee has to communicate with directors who aren't performing and, if necessary, engineer their departures.