Director Composition | Governance Center Blog

Director Composition Governance Center Blog


The Conference Board *

Feb 04 2010 *

Director Composition *

by Gary Larkin-->As companies continue to deal with the repercussions of the financial crisis, finding directors to fill the seats on many public company boards is becoming more difficult. In fact, in its 2009 U.S. Board Index Spencer Stuart found that 48 percent of respondents to its survey said it took three to six months to recruit new directors while another 25 percent said it took six to nine months. Only 11 percent said the search took less than three months. *

What has made the search process more menacing is that 57 percent of Spencer Stuart survey respondents reported that one or more directors left public boards in the past 12 months with more than half due to retirements. The challenge for many boards is that there were fewer new directors (those who haven’t served on any boards) joining boards in 2009 – 333 vs. 380 in 2008, according to Spencer Stuart. *

So basically many of the directors who are filling the many vacancies tend to be active executives with board experience. Only 16 percent of the new independent directors are first-timers on outside public boards, which is by far the smallest percentage in recent years, according to Spencer Stuart. *

At the same time, the Spencer Stuart Board Index reported the following on corporate governance changes ahead of proposed legislative and regulatory reforms: *

Majority voting: Sixty-five percent of boards in 2009 report they require directors who fail to get a majority vote from shareholders to tender their resignations. That figure was 56 percent in 2008. *

Director term limits: One-year terms for directors are the norm for 68 percent of the S&P 500 compared to 38 percent 10 years ago. *

Independent leadership: Half of all boards have only one insider, the CEO, which is up from 44 percent in 2008. Also, 37 percent separate the chairman and CEO roles compared to only 20 percent 10 years ago. *

The Conference Board Governance Center’s 2009 Directors’ Compensation and Board Practices Report, which is due out later this month, focuses on the changes in board composition and compensation practices. It states, “Changes in board composition and functions, on the one hand, and compensation practices, on the other, appear correlated to a certain degree. More precisely, growth in director compensation, which has been observed for years across industries and revenue groups, may be the outcome of the expanding time commitment expected today from board members, as well as the potential exposure to liability resulting from more rigorous compliance requirements.” *

Additionally, the report finds that “in contrast to previous years, during which total director compensation rose in most of the 22 industries covered by the report, the most recent set of findings reveals that median total compensation remained flat in 16 industries, declined in two, and increased in only four.” Also, it states, “Most companies have between eight and 12 board members, little variation in the number of directors exists from industry to industry, and boards tend to grow larger as corporate revenue increases.” *

To find out more about the trends in board composition and governance, I reached out to Julie Daum, the practice leader for Spencer Stuart’s North American Board Services Practice. She said that while the job of director is much more time-consuming and carries a lot more liability than in the past, there are quite a few eligible candidates in the director pool thanks to an increase in retirements. *

See original post: http://tcbblogs.org/governance/2010/02/04/qa-with-julie-daum-%e2%80%93-director-composition/

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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.