The Nature of Board Nominating Committees and Their Role in Corporate Governance

This study examines the association between the employment and composition of nominating committees with board and ownership characteristics. First, the results suggest that the likelihood of using a nominating committee is inversely related to the level of inside ownership and positively weakly, related to the independence, but not the number, of outside board members. Second, the percentage of insiders participating in the committee is positively related to inside ownership, and negatively related to proxies for outside director quality. Finally, outside directors are more likely to serve on the nominating committee the more outside directorships they hold, and the longer their tenure in the firm. The likelihood of insider committee membership rises with a director's equity investment, with board tenure, and with other committee memberships. Taken together, the results are consistent with nominating committees substituting inside ownership in controlling management, mostly improving board quality, and being staffed with independent, experienced, and knowledgable members.