How a corporation decides who its board members are is a process that most people are unfamiliar with. The common belief is that the executives of companies simply choose their own board members, but for many public corporations and companies that have a large number of shareholders, this is not the case.
Receiving a board of directors nomination is a great honor because it shows that a person has demonstrated leadership abilities and that their peers recognize the potential value that they will bring to an organization by becoming a member of its board.
You might wonder how anyone could decline nomination for a board position, but it is possible and does happen. Below, we’ll discuss the board nomination process, how someone can withdraw after being nominated, and what may happen afterward.
Organizations and corporations have several options available for nominating board members. It all depends on the company's charter and bylaws, but here are a few options for nominating board members.
A committee of high-ranking board members will form the basis of most nomination committees. In certain instances, a third party may be appointed as the committee to ensure impartiality. The nominating committee will seek out recommendations from other board members and company management. A board president can even nominate a vice president to the committee, though ultimately it is up to the committee to decide.
Upon receiving recommendations, the nominating committee will discuss the merits of each candidate and interview the candidates to determine their commitment to the organization. Lastly, the committee typically presents the nominees to the full board for approval before an election is held.
Also known as open nominations, these are nominations that may be held at an annual shareholder meeting or similar event where major stakeholders are present. This scenario is also seen in cases where one individual owns a large enough percentage of a company that they can nominate their own board members. They can often elect their own board members due to how many shares they own, with each share counting as a vote.
Typically, there will be many board seats open in a given year, and therefore, multiple nominees will be up for election. In most cases, this number significantly exceeds the number of open seats to ensure fairness to shareholders. Votes are conducted with one of two systems.
Preferential voting, also known as ranked-choice, is a system in which a voter chooses candidates in order of preference. This means that if their first choice fails to secure enough votes for a board seat, their vote will go to the next preferred candidate, and so on, until all the board seats are filled.
The other system is known as cumulative voting, in which a voter is given a set number of votes and may distribute those votes among the candidates in any way they choose. A voter may wish to give all their votes to one candidate or spread them between a few different candidates; the candidates who receive the most votes are appointed to the open board seats.
Ideally, a corporate charter will have a requirement that all potential nominees for board seats promise—before they are officially nominated—to fulfill their duties if they are elected. However, in scenarios such as floor nominations, a person may be nominated against their wishes. In these cases, the nominee should inform the board in writing of their intent to withdraw. If they are still elected by write-in votes, they may also refuse to serve. In this case, a new election will be held.
User-friendly systems like ElectionBuddy can help streamline the process of board member nominations and elections. These systems make the overall voting process more secure, transparent, and democratic by enhancing voter engagement and offering unparalleled convenience.
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