The Nordic Nomination Committee and Board Tenure: An Empirical Investigation

This paper contributes empirically to the debate on who should nominate new directors: shareholders or the board? While nomination committees composed of incumbent board members are common around the world, the use of nomination committees composed of shareholders (SNBs) is recommended in several Nordic countries. We use the unique case of Finland as a quasi-experiment to examine the relation between the type of nomination procedure and board turnover. We find that firms with SNBs have boards with shorter average tenure, and fewer long-serving directors. We also find evidence suggesting a higher turnover performance sensitivity in the case of SNB firms: the average board tenure is more strongly related to firm performance in the case of SNB firms, and the relation between board tenure and the presence of experienced directors is more related to performance in SNB firms. In all, our results support the claim that SNBs might be useful tools to turn around board structures and tie individual director´s performance to company performance.