As the balance of power in corporate governance shifts toward shareholders, corporate boards are coming under scrutiny from investors on issues of board recruiting and board diversity. More than ever, boards are facing pressure to address deficiencies in their composition and eliminate any negative perception they are portraying to shareholders.
Equilar recently hosted a webinar with Blair Jones, Managing Director at Semler Brossy Consulting Group, and Kiersten Salander, Deputy Chief of Staff and Chair of the 30% Club to discuss key strategies pertaining to board assessment and board succession planning, as well as findings from the recent Board Composition and Recruiting Trends 2016 report. Below is a short recap of the presentation.
Board strategies for replacing long-term directors
The percentage of new directors to an S&P 500 board increased from 8.7 in 2013 to 9.9% in 2016, which may have to do with boards implementing mandatory retirement ages—the number of S&P 500 boards implementing a mandatory retirement age increased to 38.9% in 2016, up from 29.8% in 2012.
“Boards are beginning to realize that they have to come up with some termination scenario in order to foster refreshment, and both term limits and mandatory retirement ages offer the ability to do that,” explained Jones. “The challenge with term limits is that they can seem arbitrary, because the optimal term can differ by industry or company, so retirement is a more natural way to build refreshment.”
Gender diversity on boards
Currently, women account for 21.3% of S&P 500 board directors, with the services and consumer goods services having the highest prevalence of female directors. Ideally, boards should be focusing on driving greater gender diversity, the panelists said.
“There’s an increasing amount of empirical data that links diversity in the boardroom to better governance and, ultimately, increased shareholder value,” suggested Salander. “Many institutional investors have now included statements on their proxy voting guidelines that say they are focused on the nomination process, the process by which boards evaluate themselves and the consideration given towards board diversity in this process, including, but not limited to, diversity of gender, age, race and skillset.”
Ultimately, change comes down to board chairs to try to push gender diversity in their boardrooms, as there is no legislation in the U.S requiring it.
The relevance of directors with CEO experience
The percentage of new directors with CEO experience has fallen from 40% in 2013 to 32% in 2016, according to the Equilar study, a definitive sign that companies are looking beyond the CEO role for board talent.
“The CEO and CFO are still sought after, but companies are open to reach out to a broader set of candidates,” explained Jones. “Nominating and governance committees are looking at the skillset that they need and the portfolio skills on the board that will be most helpful, and by doing that, it’s driving openness and urgency to reach out to other populations.”
How boards are breaking down their skillset
The number of companies that included a board skills matrix in their proxies nearly doubled in the past year from 32 companies in the S&P 500 in 2015 to 63 in 2016 (12.6%).
“The matrix should be a manifestation of how the nominating governance committee is approaching their thinking of the portfolio skills that are need for the board,” explained Jones. “I think we will continue to see more of this, because as companies are doing shareholder outreach, it’s clear investors are interested in this issue, and the skills matrix offers an easy way to help your investors see the data.”
To request to view the full replay of this webinar, click here.
The Equilar Diversity Network is the first and only platform combining gender and ethnic diversity board candidate registries, providing boards and their search committees with a single tool to identify and reference potential candidates with these diverse backgrounds. To learn more, click here.
For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Communications at firstname.lastname@example.org. Amit Batish authored this post.