Silicon Valley board leadership and composition becoming more independent

Spencer Stuart study also highlights new compensation disclosure practices

San Mateo, Calif., December 5, 2007 — The boards of Silicon Valley’s 100 leading technology companies have more independent directors and are more likely to have independent board leadership in the five years since the passage of the Sarbanes-Oxley Act of 2002, according to the fifth annual Spencer Stuart Silicon Valley Board Index.

In addition to tracking the impact of governance changes on the composition and practices of Silicon Valley boards over the past five years, the 2007 Spencer Stuart Silicon Valley Board Index also highlights trends in director compensation and the makeup of the newly appointed directors to Silicon Valley boards.

Spencer Stuart, a leading executive search consulting firm, first published the Silicon Valley Board Index in 2003 to observe how Silicon Valley boards were responding to a range of new governance requirements established by the Sarbanes-Oxley Act and the stock exchanges. Among the most significant trends is the growing independence of Silicon Valley boards’ composition and leadership.

• Today, 83 percent of the directors serving on the average Silicon Valley board are independent, compared with 75 percent in 2003.
• Nearly two-thirds of Silicon Valley boards, 64 percent, split the responsibilities of the CEO and chair between two people, compared with 45 percent in 2004, the first year the index tracked this information. By comparison, 35 percent of S&P 500 boards separate the roles.
• Silicon Valley boards today are much more likely to appoint an independent lead or presiding director than in 2003; 46 percent of Silicon Valley boards report having a lead or presiding director today, compared with only 12 percent in 2003. Ninety-four percent of S&P 500 boards report having a lead or presiding director today, compared with 36 percent in 2003.

"We see in the five-year trend data increased board independence. Boards have changed in other ways, too, of course, during the past five years. They have moved beyond mere compliance with regulatory requirements toward a more comprehensive consideration of how board composition and processes should evolve to further support the company’s objectives. Over time, we have seen that boards have advanced the process by which they identify independent directors and brought on directors with different backgrounds," said John Ware, co-author of the report and a consultant in Spencer Stuart’s Board Services Practice in Silicon Valley.

Another development is the advent of new compensation reporting requirements, which took effect this year. Among the 48 Silicon Valley boards that reported director compensation information under the new SEC filing guidelines as of our June 30, 2007, cut-off date, the average total compensation per director is $238,336. On average, 21 percent of the compensation is paid is cash, 65 percent in options, 13 percent in stock awards and 1 percent in miscellaneous fees, including insurance, health benefits and travel allowances.

"Executive and director compensation has emerged as an area of intense scrutiny during the past several years. It is too early to know what effect the disclosure requirements and growing investor activism will have on the compensation of executives and directors," said Nayla Rizk, co-author of the index and a consultant in Spencer Stuart’s Board Services Practice in Silicon Valley. "We will continue to monitor the impact of the new expectations on Silicon Valley boards and the new approaches they undertake."

Other highlights from the 2007 Silicon Valley Board Index include:

• Silicon Valley boards have made little progress in increasing the representation of women in the past five years. The percentage of boards with female directors has increased from 41 percent in 2003 to only 48 percent today. Approximately 15 percent of the new directors added to Silicon Valley boards in the past year were women.
• Our analysis indicates that in the past year Silicon Valley boards added 82 new independent directors. The youngest was 29 years old, the oldest was 76 and 12 were women.
• Directors are spending more time on board work. During the past five years, Silicon Valley boards have added one meeting to their annual schedule on average. Audit committees are meeting approximately four more times on average than they did in 2003.
• Thirty-six percent of Silicon Valley boards included in the index report having a mandatory retirement age. Among those that do, the average retirement age has crept up from 69 years in 2003 to 72 today.
• With the increased responsibility and time commitment, director compensation continues to grow. The average annual board retainer paid to Silicon Valley directors is $35,600, a 42 percent increase from the average $25,000 retainer in 2003.The average board meeting attendance fee is $2,000, 14 percent higher than the average in 2003.
• Even as director compensation continues to rise, the compensation mix also is evolving. Companies are more likely to provide restricted stock to directors and somewhat less likely to provide stock options. Nearly one-third of Silicon Valley boards provide restricted stock units to directors today, compared with 17 percent in 2006 and 10 percent in 2005, the first year the index tracked this data. By comparison, 88 percent of Silicon Valley boards provide a stock option program for board directors, compared with 95 percent in 2006 and 91 percent in 2003.
• Twenty-two percent of Silicon Valley companies provide an annual retainer to the nonexecutive board chair over and above the retainer that other directors receive. Among those companies providing a premium to the chair, the average additional payment is $45,300.
• Today, 88 percent of Silicon Valley boards provide an annual retainer to the audit committee chair; 55 percent provide a retainer to audit committee members. The average cash retainer is $17,000 for the audit committee chair and $9,000 for audit committee members.

The complete version of the Silicon Valley Board Index is available on the Spencer Stuart web site, www.spencerstuart.com.

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.

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.

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