More than half of Silicon Valley boards split CEO and board chair responsibilities, new study finds
Monday December 04 2006
Fourth annual Spencer Stuart Silicon Valley Board Index also highlights growth in committee work and director compensation during past four years
San Mateo, California, December 4, 2006 — More than half of Silicon Valley boards of directors — 58% — have moved to a governance structure in which the CEO does not serve as the board chairman, according to the fourth annual Spencer Stuart Silicon Valley Board Index. Silicon Valley boards embrace this practice significantly more than the boards of S&P 500 companies, where only 33% split the roles. The report, which examines the composition and corporate governance practices of the boards of Silicon Valley’s 100 leading public technology companies, also documents the sharp increases in director compensation and in the number of audit and compensation committee meetings.
Spencer Stuart, one of the world’s leading executive search consulting firms, introduced the Silicon Valley Board Index in 2003 as the new requirements established by the Sarbanes-Oxley Act and the stock exchanges were beginning to take effect. This year’s index highlights how changing governance requirements and investor expectations have affected Silicon Valley boards in the past four years.
Silicon Valley boards have been more likely to split the chairman and CEO roles between two people than their counterparts in the S&P 500. In 2004, the year the study began tracking this information, 45% of Silicon Valley boards split the chairman and CEO responsibilities. By comparison, one-third of S&P 500 boards currently split the roles versus 26% in 2004.
“Silicon Valley boards appear to be more comfortable with splitting the chairman and CEO responsibilities than their S&P 500 counterparts,” said John Ware, co-author of the report and a consultant in Spencer Stuart’s Board Services Practice in Silicon Valley. “While significant controversy continues in boardrooms across America about which governance model is best, it appears Silicon Valley has made its choice.”
As their responsibilities have grown, Silicon Valley board audit and compensation committees are meeting more often than in the past, the study found. The audit committees of Silicon Valley boards met, on average, 10.7 times during the 2006 proxy year — holding four more meetings a year on average than they did in 2003. Similarly, as CEO pay has become a flashpoint for many investors, compensation committees also are meeting more often than in the past. Compensation committees of Silicon Valley boards met on average 6.6 times, two-and-a-half more meetings than in 2003. Overall, Silicon Valley boards met on average meet 8.8 times, holding one-and-a-half more meetings today than they did in 2003.
“One of the lasting impacts of governance reform is the tremendous increase in the time commitment required for board service, particularly for committee work,” said Nayla Rizk, co-author of the report and a consultant in Spencer Stuart’s Board Services Practice in Silicon Valley. “Deliberations related to the options back dating issue and CEO compensation reporting requirements may well increase the number of board and committee meetings during the coming year.”
Finally, director compensation has risen for both board and committee work as directors’ duties have increased. Since 2003, the average annual board cash retainer has increased by 41% to $35,200. Boards also are much more likely than in the past to provide additional compensation to audit committee chairs and members. Eighty-four percent of Silicon Valley boards pay a retainer to the audit committee chairman, compared with only 18% in 2003. The average annual retainer for audit committee chairs is $14,600.
Other notable findings in this year’s study include the following:
- The representation of women on Silicon Valley boards has risen modestly since 2003, when 41% of Silicon Valley companies had at least one female director. Today, 44% of boards include at least one woman, the same percentage as last year.
- Half of Silicon Valley boards welcomed new independent directors in 2006, a slight increase from last year when 46% of boards added new directors. Eleven percent of the 84 new independent directors were women. By comparison, last year women represented 6% of the 81 new independent directors added by Silicon Valley boards.
- Independent lead and presiding directors are much more common among Silicon Valley companies today than in the past. Today, 43% of boards included in the study have lead or presiding directors, compared with 12% in 2003.
- Silicon Valley boards are more likely to report a mandatory retirement age for directors than they were in 2003. Today, 30% of boards report a mandatory retirement age, compared with 10% in 2003. The average mandatory retirement age is now 72, compared with 69 in 2003.
- Stock options remain a key component of director compensation. Stock option programs are offered at 95% of the Silicon Valley boards included in the study, including the boards of all companies with revenue less that $250 million. Meanwhile, more Silicon Valley boards than last year reported offering restricted stock grants and restricted stock units; 17% of boards offered restricted stock this year, with an average award of 4,100 shares. Last year, the first year the study tracked this data, 10% of Silicon Valley boards provided restricted stock or restricted stock units, with an average award of 3,300 shares.
Spencer Stuart’s Silicon Valley office opened in 1991 to respond to a growing demand for senior-level leadership by technology companies in the region. Since then, consultants in the office have helped recruit board members, CEOs and a broad range of senior-level functional executives for both technology and other companies, as well as for private equity and venture capital firms.
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 www.spencerstuart.com.