This 24th edition of the Spencer Stuart Board Index (SSBI) gives perspective on increasing corporate governance issues for boards and suggestions of solutions boards can implement to alleviate uncertainties and pressures. Although the future of corporate governance proposals cannot be predicted, it is certain that the trend towards increased scrutiny of boardroom activities will continue. This scrutiny will not be limited to executive compensation, but will likely include audit and nominating committee activities as well. Not only should all boards ensure they are operating effectively with proper governance controls in place, but they should also anticipate increasing questioning from shareholders in the future concerning their practices.
The SSBI believes that the most effective boards have management and directors who understand and agree on the company’s strategic focus. With the common goal of creating value for the organization coupled with effective leadership in the boardroom, these boards are primed to effectively navigate the company through tough times.
This SSBI includes statistics on several key findings surrounding the current state and issues of boards including:
- 37% of S&P 500 companies now split the chair and CEO roles, compared with 20% a decade ago.
- Half of all S&P 500 boards now have only one insider, the CEO, up from 44% past year.
- 95% of boards report having a lead or presiding director.
- 94% of all S&P 500 boards conduct some kind of annual performance evaluation, up from 90% last year. However, these annual performances evaluated dramatically different factors.
- Nearly a third of respondents still do not have a long-term emergency succession plan in place.
- The average tenure of all sitting directors on S&P 500 boards in 8.4 years compared with the average CEO tenure of 6.7 years, meaning most directors will serve for longer than the CEO and will be involved in CEO succession first-hand.
- Behind executive compensation, the next two pressing issues were the board’s role in corporate strategy discussion and risk management.
- The average board size has remained stable in recent years at 10.8 people in 2009.
- The average and median numbers of board meetings have continued to increase to 9 and 8 respectively, in 2009.
- Two-thirds of S&P 500 companies now restrict the number of outside corporate boards their directors may be in, up from 27% in 2006.
- One in five new directors comes from diverse ethnic backgrounds, and 17% are women.
- 55% of respondents cited a stronger need for directors with financial expertise backgrounds, 25% with risk expertise and 20% with regulatory/government expertise.
- 95% of boards report having a lead director, a role that is now a fixture on most S&P 500 boards.
The SSBI notes that while not all of the governance changes currently being discussed and debated among numerous players will become reality, they believe that those in play could “potentially reshape the corporate governance landscape as dramatically as Sarbanes-Oxley.” It may take some time before the full impact of these changes is realized. At a minimum,the SSBI notes that companies and their boards should anticipate a “brighter spotlight” of what goes on in the boardroom. Boards should expect increasing calls from shareholders who are interested in understanding more about what the board is doing. For example, SSBI reports that 59% of their survey respondents say that shareholders contacted management to discuss particular topics or to get on the board’s agenda.
The SSBI provides additional findings and more in-depth discussion of these statistics throughout the report. This information is critical for boards to be aware of trends and prepare themselves for the future.
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