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.
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