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Home arrow Economics arrow Boards of directors of state-owned enterprises : an overview of national practices.

The role of the board in nomination

According to the annotations to the SOE Guidelines, the board should be able to make recommendations to the ownership entity concerning board recruitment. The Guidelines further suggest board nomination committees as a means to better identify candidates.

Listed SOEs have to follow listing and maintenance requirements, which in many countries include corporate governance stipulations requiring that the

SOE Guidelines, Annotations to Guideline II.F.2 on the board nomination process

Annotations to Guideline II.F.2: “SOE boards should also be able to make recommendations to the ownership entity based on the approved board member profiles, skill requirements and board member evaluations. Setting up nomination committees may be useful, helping to focus the search for good candidates and in structuring further the nomination process.”

board makes the nomination decisions. The benefits to including the board in the decision making process is that the board knows the type of profile and talent it needs to complete the team. Internal board nomination committees help to filter candidates with final approval with the full board. This would arguably constitute a good practice for SOEs in general - whether listed or not. Currently, however, the use of board nomination committees and the formal involvement of the board is not common practice. Nevertheless, a number of countries have put into place processes that follow good practice supported the by the SOE Guidelines, some of which are summarised in this chapter.

In Canada, there is a formal process requiring Boards to establish and maintain board profiles, a process that seems to align practices with the recommendations of the SOE Guidelines. When a vacancy arises, the responsible minister for nominating a candidate (and his or her staff, with the support of his or her department) will be guided by the board profile developed by the board of directors to identify potential directors for appointment. The use of board profiles in Canada is described in more detail in Box 2.2.

The United Kingdom also has a process which formally involves the board of the SOE in the recruitment and selection process at various stages. The Shareholder Executive (the government's co-ordination entity) and the SOE Chair agree on the mix of skills and experience required on the board leading to agreement on a strategic plan of public appointments. A timetable for recruitment is then agreed between the SOE, the lead Director in the Shareholder Executive. For specific appointments, a draft specification setting out the role and requirements for the board appointment is drafted and agreed with the SOE. When interview panels are convened, they will include the Chair (Box 2.3).

Good practice: The board should be involved in the nomination process in an advisory capacity

More commonly the board is involved through informal consultations between the board, or its Chair, and the ownership unit. For instance, in Finland the ownership unit, OSD, consults with the Chair on the board's performance and the skills and attributes required, well in advance of the

Box 2.2. The use of board profiles in Canada

The Board of Directors liaises with the responsible minister’s office and the portfolio department on all appointment-related issues, including advising the government on selection criteria for Chairpersons, as well as developing competency profiles and future needs for directors to fill upcoming vacancies.

Crown corporations are asked to develop and maintain a Board profile to ensure responsible ministers and their departments have a thorough understanding of the competencies required by the Board as a whole and to identify any gaps in those competencies.

A board profile describes the experience, attributes and skills that should be possessed by the board as a whole. While it may be essential for all directors to possess certain attributes and skills, other specialized skills may be required for one or two directors only. A director profile, therefore, is a subset of the board profile which provides a concise description of a position that contains all the information necessary to fill a vacancy on the board. Board profiles for all Crown corporations are publicly available on the Governor in Council Appointments website (www.appointments-nominations.gc.ca).

The responsible minister and his or her department will use the board profile and the director profile to guide them in identifying suitable candidates for consideration for appointment to a board of directors.

Source: Canadian authorities’ response to OECD questionnaire.

AGM when appointments are made. Estonia similarly states that there is no formal rule to consult the Chair of the board on the vacant positions, but informal discussions may be held to choose the best possible candidate. In Norway, the board evaluates its composition and functioning, both individually and as a group. These assessments are made available to the nomination committee, to use as one of several sources to identify board’s needs/characteristics.

In Denmark (Box 2.4), the nomination of new directors involves the Chair of the Board at all stages in the process. Approximately six months prior to the AGM (which appoints new directors) there is normally a discussion between the Minister/Ministry and the Chair about possible needs to change the board composition. Change may be triggered by resignations, a need to strengthen the board, or to ensure staggered board renewal. The Chair will work with the Minister/Ministry to form a common view on which qualifications and experiences of potential candidates that could strengthen the board’s composition (with the aim developing a written profile of the desired competencies of any board of state-owned companies). The Chair of the Board may then propose a

Box 2.3. Board appointment process in the United Kingdom

The general Office of Commissioner of Public Appointments (OCPA) recruitment process is as follows (although this may vary slightly depending on the size of the SOE and the specific requirements of the post):

  • • The central ownership advisory unit, the Shareholder Executive (ShEx) and the SOE Chair agree on the mix of skills and experience required on the Board leading to agreement on a strategic plan of public appointments. A timetable for recruitment is then agreed between the SOE, the lead Director in ShEx and an Independent Assessor (IA).
  • • A draft specification setting out the role and requirements for the Board appointment is drafted and agreed with HR and the SOE. The role and person specification is then agreed with the body or Minister making the final decision.
  • • A candidate search is undertaken with the vacant position being publicly announced (i.e. advertised) and often involving the use of recruitment agencies to ensure a more thorough search of potential candidates.
  • • On the basis of applications received a long list of potential candidates is produced. An initial sift involving ShEx, the IA and the SOE is conducted to produce a short list of candidates to interview.
  • • An interview panel is established comprising a the lead ShEx policy official, the IA and the Chair of the SOE.
  • • The panel will then reaches agreement on the preferred candidate and submit a panel report with recommendations to Departmental Ministers.
  • • Once Ministers have agreed the recommendation the appointment can be made.
  • • An appointment is normally for a fixed period of 3 years at which point the position is subject to re-election.
  • • The remuneration of the successful candidate, if over ?142k, needs to be agreed with the Chief Secretary to the Treasury.

Where the post is not OCPA regulated, the SOE runs the process but follows the OCPA guidelines in most instances. ShEx is closely involved if the post is important (e.g. CEO or Finance Director) in the process. For example, ShEx will be a member of the interview panel. In this way, ShEx is able to make suitable recommendations to give consent for appointments.

Source: British authorities' response to OECD questionnaire.

number of candidates to the ministry, but candidates may also be sought from other sources.

Box 2.4. Identifying potential board members in Denmark

The process to identify board members in Denmark is as follows:

  • • The starting point for board nomination is normally a discussion between the Minister/the Ministry and the Chair of the board about the need to change the board composition at the next annual general meeting. A need for change can arise because current board members will like to resign, a preference for strengthening the board, a preference for ensuring that board compositions are changed gradually to secure “new blood” and continuity, etc. The initial discussion ideally takes place in the autumn, as the Annual General Meetings takes place in March and April.
  • • Given a common view of the need to change the composition of a board, the next step is to form a view on which qualifications and experiences of potential candidates that could strengthen the board’s composition. Although not fully established yet, it is the aim to develop a written profile of the desired competencies of any board of state-owned companies.
  • • Based on a joint view on desired competencies, the next step is to identify potential candidates, and - depending on the specific circumstances - it will often be the Chair of the board that proposes a number of candidates to the Ministry, but candidates may also be proposed by the Minister/the Ministry. Recruitment firms may be involved in this process, but it is not typical.
  • • Based on the actual composition of the boards of SOEs, the vast majority of board members are drawn from the private sector. Some have in the past been either employed in the public sector or been politicians (minister/ member of parliament), but all have worked in the private sector at managerial level since resigning from public service.
  • • Based on the short list, which is presented to the minister, the most suitable candidates (normally 2-3) to a given board post are identified.
  • • The minister then presents these proposals for the Government’s Appointment and Organisation Committee, who agree on which candidate to approach. The approach to candidates is made either by the Ministry or the Board Chair, and it is typical that the Chair interviews the candidate to make sure that expectations between the candidate and the company are aligned. Of course, if a new Chair is to be elected, it is the ministry that may interview the candidate (in particular if the candidate for the chairmanship is not already on the board, and therefore know to the ministry).
  • • If the candidate accepts the nomination, the Minister then presents a final proposal to the Government’s Appointment and Organisation Committee, and if approved can then elect the candidate at the next general meeting.

Source: Danish authorities’ response to OECD questionnaire.

In Switzerland, the board has the legal role of proposing the final candidate(s) to the AGM for appointment. For fully-owned SOEs, the Federal Council (executive authority), as the sole shareholder, decides on the nominees. Nevertheless, the board has a strong role in identifying potential nominees. When vacancies arise, the Chair and/or a board committee develop a requirements profile for board members and specifically define the board's needs in new appointments. The board then works with the ownership unit to identify and (pre)evaluate potential candidates. Out of this larger pool a shortlist is established in a multistage procedure, commonly supported by an external consultant (head-hunter) and in close contact with the heads of the ownership units.

 
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