NEW YORK, Sept. 19 /PRNewswire/ -- Spencer Stuart, the global executive
recruiting firm, said today that the 20th Spencer Stuart Board Index (SSBI)
study and survey of boards of directors in the S&P 500 shows three significant
findings: Progress has been made on corporate governance changes mandated by
the Sarbanes-Oxley law of 2002; lead directors are now standard in boardrooms
and active CEOS/COOs are more reluctant to serve as directors.
Few truly independent chairmen; Lead Director catching on
Despite calls for more independent chairmen, less than 10 percent of all
S&P 500 boards have independent chairmen. The CEO is still chairman on
71 percent of S&P 500 boards, and on 140 boards where the CEO is not chairman,
67 percent are not independent. On the other hand, boards recognize the need
for lead or presiding directors. A total of 94 percent of all S&P 500 boards
now have a lead or presiding director, compared with 85 percent last year.
Just 36 percent reported having this position in 2003. The increase
represents the strengthening board leadership by independent directors, even
if not in the chairman role.
Active senior executives continue to decline director positions
Given the increasing time commitment required for board service and a
perception by some of greater financial and reputational risk, it is becoming
harder to recruit active CEOs/COOs as directors, although companies prefer
them. Active CEOs on average now serve on less than one outside corporate
board, down from 2.0 in 1998. Active CEOs/COOs account for 32 percent of new
board appointments, down from 53 percent in 2000. Perhaps as a result, boards
are increasingly turning to retired CEOs or active executives at the next
level down (e.g., division and subsidiary presidents) for directors.
A long-term trend toward boards with fewer directors continued during the
year. In 1998, average board size was 12 directors, compared to an average of
10.7 in 2005. Two-thirds of S&P 500 boards now have between nine and
12 percent of boards still have no women
While 20 percent of newly appointed directors are women, the total number
of women on S&P 500 boards remains the same as last year at 15 percent. There
are still 58 companies, or 12 percent of boards, with no women. A total of
43 percent were technology firms, and the state with the highest number of
boards without women was California with 29 percent. Sixty-two percent of
boards without a woman director had annual revenues below $4 billion.
Board composition continues to change
Spencer Stuart said the most visible result of Sarbanes-Oxley in terms of
board composition was an immediate increase in the number of new independent
directors. Annual appointments of new independent directors rose from 278 in
2001 to 401 in 2002, 393 in 2003 and 443 in 2004. The 2005 SSBI revealed that
the number of newly appointed directors dropped by almost 25 percent to 333.
"Appointments of new directors increased after the passage of
Sarbanes-Oxley but have returned to traditional levels," said Julie Daum,
Spencer Stuart's North American Board Services Practice Leader. "Companies
have appointed financial experts to audit committees, as the law prescribes,
and have complied with regulations from the stock exchanges that increase the
representation and power of independent directors."
Audit committees adapting
A total of 98 percent of boards have identified at least one financial
expert, up from 91 percent last year and 21 percent in 2003. S&P 500
companies identified 908 financial experts on 468 boards in 2005, compared
with 832 in 2004 and 146 in 2003. The percentage of designated financial
experts on boards has increased to 18 percent of all board members, up from
three percent in 2003. A total of 48 percent of boards have identified more
than one expert. It is anticipated that the number of financial experts will
continue to rise.
The SSBI found no discernable shift in the demographic makeup of audit
committees since Sarbanes-Oxley, although the law requires the presence of a
financial expert on the committee. A total of 59 percent of audit committee
members are active or retired CEOs, presidents, chairmen or other senior
corporate executives, a similar percentage as past years. Interestingly,
active or retired CFOs comprise just six percent of the total, and among new
members to audit committees, accountants comprise just three percent.
Director compensation continues to rise
Director compensation continued to climb with the average annual retainer
in this year's study at $56,550, a double-digit increase of 14 percent over
last year's study when it was $49,727 and a continuation of double digit
increases over the last few years. In addition, equity compensation remains a
significant component for many boards. Among the 104 S&P 500 boards in the
SSBI supplemental survey that disclosed the cash value of stock grants and/or
stock options awarded annually to directors in addition to the cash retainer,
the average total compensation per director (including committee compensation)
was $136,360. The average equity award portion of total compensation was
$86,375. The comparable figures for the 80 companies that disclosed this
information in 2004 were $135,420 and $87,144.
"Increased compensation reflects directors' more involved role," said
Thomas J. Neff, Chairman of Spencer Stuart US. "This is a logical trend in
that board service clearly requires more time since Sarbanes-Oxley.
About the report
Spencer Stuart extracted information for this year's 20th SSBI directly
from 478 company proxies. The firm also researched company web sites to
determine what organizations say about corporate governance and conducted a
separate survey to assess corporate governance issues not recorded in proxies.
Spencer Stuart will publish the full SSBI study, including information
about director compensation, by November, and it will also be available on the
firm's web site at http://www.spencerstuart.com.
About Spencer Stuart
Spencer Stuart is the foremost privately held global executive search
firm, spanning over 50 offices in 25 countries. Since 1956, the firm has
provided clients with a range of human capital solutions, including
senior-level executive search, board director appointments and strategic
leadership services. Spencer Stuart conducts nearly 4,000 assignments each
year, partnering effectively with clients across a broad range of industries
and sectors including Fortune 500, mid-cap, and emerging growth companies, as
well as leading not-for-profit organizations.
SOURCE Spencer Stuart