In 10 Years, US Boards Have Changed Their Profiles, 23rd Annual Spencer Stuart Board Index reveals significant shifts
07 October 2008
NEW YORK, October 7, 2008 — The 23rd annual Spencer Stuart Board Index (SSBI) study of S&P 500 corporations reveals that in the last 10 years board composition and structure have changed significantly as have discussions in the boardroom.
On average, boards are older and directors serve shorter terms than 10 years ago. There are also fewer active CEOs and more first-time directors joining boards. A total of 26 percent of boards have an average age of 64 or older, up from 14 percent 10 years ago, even though 74 percent of boards now have mandatory retirement ages. As of 2008, 66 percent of boards have one-year terms, up from 40 percent just five years ago and 39 percent 10 years ago. In 2008, 31 percent of new independent directors are active CEOS, down from 49 percent in 1998, and 24 percent of new independent directors are serving on an outside public-company board for the first time.
"The profile of new directors will continue to evolve," said Julie Daum, the leader of the Spencer Stuart North American Board Services Practice. "More directors will be division presidents or other senior corporate executives and more will bring relevant industry expertise to the boardroom." In 2008, 19% of new directors were of this type, up from 9% in 1998.
Daum said in the next five years, there will be more diversity in boardrooms, as well, in terms of gender, race, perspective and experience. Over the past year, roughly a quarter of the searches Spencer Stuart conducted in North America were for directors with international experience. Boards will also continue to seek women and minorities. In a survey of 127 companies that was part of the SSBI, 54 percent of boards indicated their desire to attract more women and 55 percent of boards are seeking more minority directors. Spencer Stuart has placed more than 450 women and more than 250 minority candidates on boards since 2000.
The last decade has been dramatic for board independence. In 1998, the CEO was the only insider on 23 percent of boards. Today the CEO is the only insider on 44 percent. A total of 36 percent of boards reported lead or presiding directors in 2003, compared with 95 percent today. In 1998, 16 percent of boards separated the role of chairman and CEO. Today, 39 percent divide the role, with 16 percent of chairmen deemed independent.
Spencer Stuart's survey showed that boards have turned from compliance issues to such tasks as determining executive compensation, addressing shareholder concerns and defining the board's role in corporate strategy discussions.
Among other findings in the 23rd annual SSBI are:
- Average board size has converged. Very large and very small boards are less common. Nearly 75 percent of boards have between nine and 13 directors, up from 66 percent in 1998. A decade ago, 23% of boards had 14 or more directors; today only 11% do.
- Audit committees are meeting slightly less often than in the immediate post-Sarbanes Oxley years, while compensation committees are meeting more often as the spotlight remains on executive pay.
- CEO succession is on the board’s discussion agenda annually at 61 percent of companies surveyed and more than once a year at 34 percent. A total of 86 percent of boards have an emergency succession plan in place, up from 75 percent last year, and 71 percent have a long-term succession plan.
- The all-inclusive total average compensation for S&P 500 directors is close to $218,000, with stock awards accounting for 39% and cash fees, 36%. However, director compensation varies widely, with utilities and basic materials at the lower end of compensation, and energy, transportation, technology and healthcare industries at the higher end. Total compensation has been listed in proxies only since 2007. The average cash retainer is $74,872, a 135% increase from 1998.
The 23rd annual Spencer Stuart Board Index will be published in its entirety and posted on Spencer Stuart’s web site (www.spencerstuart.com) by November 21, 2008.
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 52 offices in 27 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 www.spencerstuart.com.