The Spencer Stuart Board Index is an annual study that examines the state of corporate governance among S&P 500 companies. The 27th edition reveals critical trends in director recruitment, board processes and compensation. Among the notable takeaways from this year’s proxy analysis:
- Board turnover continues to decline: S&P 500 boards elected just 291 new directors in the 2012 proxy year — the smallest intake in 10 years and a 27% drop over the past 10 years.
- Restrictions on other corporate directorships more common: Given the time commitment required for effective board service, 74% of S&P 500 companies now limit other corporate directorships for their board members versus 55% five years ago.
- First-timers and other corporate executives prove to be attractive pool: Boards are recruiting more retired top executives and other corporate executives. Division/subsidiary presidents and other line and functional leaders now make up 22% of all new directors, versus 7% a decade ago. 30% of new independent directors are newcomers to outside public-company board service.
- Mandatory retirement age rising: Nearly three-quarters of all S&P 500 boards — up from 55% in 2002 — set a mandatory retirement age for directors. Of that group, 22% set the age limit at 75 or older, versus just 2% in 2002.
- Independent board leadership becoming the norm: Only 3% of S&P 500 boards have neither an independent chairman nor a lead or presiding director. And, while only 18 companies report a formal policy to split the chair/CEO role; 43% of boards – up from 25% in 2002 – now split the chairman and CEO roles.
This year’s report also gives special attention to the issue of female representation on boards. Despite acknowledgement by boards that diversity in the boardroom generally results in increased value for shareholders, the pace of change in the U.S. is discouraging. Women now account for just over 17% of independent directors, up from 16% in 2007 and 12% in 2002. Today, 61% of S&P 500 companies have two or more women on the board, up from 55% in 2007 and 38% in 2002, while 20% have three or more. Nine percent of S&P 500 companies do not have any
As European governments have made diversification a priority, U.S. companies have lost their lead in female representation. The S&P 500 now trails Norway (40%), Finland (27%), Sweden (26%), France (22%), Denmark (18%) and the Netherlands (18%) and ties with Germany (17%) in the percentage of women on corporate boards. Several of these countries adopted regulation or voluntary targets to increase the percentage of women serving on corporate boards, and more may follow. And, while European boards strive to meet their gender goals, many are looking to recruit experienced female executives from the U.S., particularly those with specialized expertise in highly sought-after areas such as digital media, emerging markets and finance.
The 2012 SSBI examines what boards can do to facilitate more change as well as many other topical issues in governance today.
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