20th Annual Spencer Stuart Director Survey Shows Scope of Governance Changes

Sep 19, 2005, 01:00 ET from Spencer Stuart

    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 members.
     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