Five-Year Trends Reveal a Changing Boardroom and Greater Independence
21st Annual Spencer Stuart Board Index highlights new profile of directors
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 strategic oversight. 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 compensation committee. 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, 2006. 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
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