NEW YORK, Sept. 20 /PRNewswire/ -- The 21st annual Spencer Stuart Board
Index survey of S&P 500 corporations shows a change in the composition of
new directors seated around the board table and corresponding, significant
improvements in a board's abilities to deliver improved independent and
Spencer Stuart, one of the world's leading executive search consulting
firms, focused its annual survey on changes in board rooms since 2001, a
time when corporate scandal was roiling markets, and one year before the
Sarbanes- Oxley Act became law in 2002. "The most dramatic change has been
in the area of CEO representation," said Julie Daum, the leader of the
North American Board Services Practice. "Boards have had to expand their
views on what they seek in a new director due to the continued trend of
active CEOs taking on fewer directorships."
The average number of outside corporate directorships held by CEOs of
S&P 500 companies has fallen to 0.8, from 1.2 in 2001 and 2.0 in 1998.
Active CEOs now comprise only 29 percent of new independent directors in
the S&P 500, down from 47 percent in 2001. Further Spencer Stuart research
reveals that 31 percent of the 391 new directors in S&P 500 companies are
serving as directors of a public company for the first time. Division
presidents and other senior corporate executives represent an increasing
share of new directors -- 15 percent in 2006 versus 9 percent in 2001.
"The five-year trends in the report indicate the profile in the
boardroom has changed. Over the next five years we expect to see more
first-time directors, more directors who are not CEOs but are highly placed
company executives, and more diversity in the boardroom," said Daum. "Many
leading companies now view recruiting a director as an opportunity to add
someone with a defined, needed set of skills and experience, such as
international assignments or expertise in technology or marketing that will
help to support the company's strategy. They have become much more
thoughtful and strategic about board composition."
Interest in recruiting more women directors remains strong, and some
progress has been made in female representation in the boardroom; 23
percent of new directors are women, up from 16 percent in 2001; and the
overall percentage of women directors in the S&P 500 is 15 percent, up from
12 percent in 2001. Of the 145 boards who responded to the supplemental
survey Spencer Stuart conducts to illuminate proxy data, 54 percent of
boards indicate they are seeking women directors. Additionally, 62 percent
of boards state they are seeking directors with minority backgrounds.
Coinciding with the changing profile of board directors, the report
demonstrates that boards are more independent in terms of both their
composition and practices. For an increasing number of boards, the CEO is
the only director employed by the company -- 39 percent versus 27 percent
in 2001. On an average 11-person board, only 2 directors now are insiders.
The prevalence of CEOs who also serve as chairman has declined from 74
percent to 67 percent. (However, the percentage of truly independent
chairmen remains at less than 10%, as frequently the non-executive chair is
the former CEO). In addition, 96 percent of S&P 500 boards reported having
lead or presiding directors to reinforce board independence, up from 36
percent in 2003. Further, audit, compensation and nominating committees now
comprise only independent directors and the trend to independence extends
to other committees as well.
In addition, survey findings demonstrate boards have built a stronger
foundation of independence in their practices. Ninety-six percent of S&P
500 firms that responded to the supplemental survey say they have a formal,
annual process to evaluate the CEO's performance. In fact, CEO evaluation
is increasingly a fundamental responsibility of the board as a whole:
Forty- three percent of respondents say their entire board is involved in
evaluating the CEO, where only last year the comparable number was 13
percent. Previously, this responsibility was primarily the job of the
Survey results also show that boards have linked CEO compensation more
directly to performance, with 74 percent saying that at least some of the
rewards are contingent on clearing performance hurdles.
Other notable trends in this year's study include the following:
* Mandatory retirement age is more prevalent, with the age limit
rising. Seventy-eight percent of boards now have a mandatory retirement
age, an increase from 58 percent in 2001. And, mandatory retirement ages
are going up, with 61 percent of boards setting the bar at age 72 and
older, versus 34 percent with retirement ages at that level in 2001.
* Greater shareholder engagement. Boards reported increased shareholder
efforts to contact the board or get on the board agenda. A total of 31
percent of companies surveyed say they had seen such activity, and it
focused on two main concerns -- majority voting by shareholders (36
percent) and CEO compensation (21 percent).
* Number of board meetings stable, while audit works overtime. While
the average and median number of board meetings annually has remained
stable at eight, the number of audit committee meetings has skyrocketed
since 2001. A total of 37 percent of audit committees meet 11 times or more
throughout the year, up from just one percent meeting that often in 2001.
* Board compensation rises with greater equity component and premiums
for committee chairs. Average annual board retainers have increased
dramatically since 2001. The average annual cash retainer portion of
compensation for a director is now $63,594, up from $36,937 in 2001.
Further, 64 percent of boards pay equity in addition to the retainer, up
from 42 percent in 2001. And, in light of the additional time demanded by
committee service, 84 percent of boards pay additional retainers to
committee chairs, up from 57 percent in 2001.
Spencer Stuart's study uses data taken directly from company proxies
and a survey of the S&P 500. The report covers a broad range of data
related to boards, directors, compensation of directors, governance
policies, director backgrounds and board organization.
The 21st annual Spencer Stuart Board Index will be published and posted
on Spencer Stuart's web site (http://www.spencerstuart.com) by November 15,
About Spencer Stuart
Spencer Stuart is one of the world's leading executive search
consulting firms. Privately held since 1956, Spencer Stuart applies its
extensive knowledge of industries, functions and talent to advise select
clients -- ranging from major multinationals to emerging companies to
nonprofit organizations -- and address their leadership requirements.
Through 50 offices in more than 25 countries and a broad range of practice
groups, Spencer Stuart consultants focus on senior-level executive search,
board director appointments, succession planning and in-depth senior
executive management assessments. For more information on Spencer Stuart,
please visit http://www.spencerstuart.com .
SOURCE Spencer Stuart