Board governance: 40 years of evolution

Milestone

First Edition: The inaugural edition of our flagship U.S. Spencer Stuart Board Index analyzes 100 large companies and financial institutions selected by Spencer Stuart.

This report offers one of the earliest comprehensive looks at board composition and governance practices among the largest U.S. corporations.

Insights

Staggered terms are widespread: 42% of the 100 surveyed boards have 3-year terms.

Mandatory retirement ages are widely adopted: 88% of the 100 surveyed boards have a formal retirement age.

Stock-based pay for directors begins to emerge: A few surveyed companies pay part of the retainer in stock or grant stock options to independent directors.

Insights

Retirement plans for independent directors expand rapidly: 53% of the 100 surveyed boards offer retirement plans, up from 39% in 1987.

Insights

Mandatory retirement ages dominate: 92% of the 100 surveyed boards have a formal retirement age.

Insights

Staggered board terms continue to expand: 51% of the 100 surveyed boards use 3-year terms.

Insights

Board downsizing accelerates: Average board size drops to 14 directors, down from 15 in 1987.

Boards independence increases: Approximately 72% of directors on the 100 surveyed boards are independent.

Insights

Retirement plans for independent directors become widespread: 79% of the 100 surveyed boards offer such plans for independent directors.

Stock-based compensation continues to expand: 44% of the 100 surveyed boards award stock grants or options to independent directors.

Insights

Board size and meeting frequency decline: Surveyed boards average 13 directors and meet 9 times annually, down from 10 in 1989.

Insights

Independent directors gain representation: Nearly half of the surveyed 100 boards have only 1-2 insiders.

Lead director role emerges: Less than 10% of the surveyed 100 boards with combined chair/CEO roles designate a lead director.

Insights

Retirement plans for directors decline: Only 61% of the surveyed 100 boards offer them, down from 80% in 1995.

Lead directors gain traction: Over one-third of the surveyed 100 boards have a designated lead director.

Methodology update

The U.S. Board Index begins analyzing the S&P 500.

Insights

Independent directors dominate: 79% of S&P 500 directors are independent.

Financial backgrounds remain underrepresented: Only 6% of new independent directors come from financial roles.

Mandatory retirement ages retreat: 66% of S&P 500 boards maintain them, down from 83% in 1993.

Insights

CEO/Chair roles remain dominate: 75% of S&P 500 CEOs are also chair.

Insights

Board size continues to shrink: Average board size is 11.1.

Board tenure remains high: Average board tenure: 15.2 years.

Stock option programs expand: 72% of boards grant options to directors, up from 66% in 2000.

Insights

Board size stabilizes: Average board size is 10.9 directors.

Insights

Committees become fully independent: 98% of audit, 96% of compensation and 91% of nom/gov committees are fully independent.

CEO experience dominates audit committees: 48% of members have CEO backgrounds; only 3% are active or retired CFOs. 

Insights

Financial expertise surges: 91% of boards identify at least one financial expert, up from 21% in 2003.

Lead/presiding directors become common: 84% of boards appoint one, up from 36% in 2003.

Women gain board representation: Women hold 16% of board seats, and 24% of new independent directors are women.

CFO and financial backgrounds remain flat:  14% of new directors come from these fields, unchanged from 2003.

Insights

Board independence reaches new highs: Nearly 40% of S&P 500 boards have only one non-independent director (the CEO), up from 12% in 2000.

Lead/presiding director roles surge: 94% of all S&P 500 boards have one, up from 85% in 2004 and just 36% in 2003.

Chair/CEO separation increases modestly: Less than 30% of boards split the roles; only 9% have an independent chair.

Financial expertise becomes widespread: 98% of boards have at least one financial expert.

CEO/COO backgrounds dominate new appointments: 45% of new directors come from these roles.

Mandatory retirement age policies rise: 78% of boards set a mandatory retirement age, up from 58% in 2000.

Insights

Board independence becomes the norm: 81% of directors are independent; on 39% of boards, the CEO is the only insider.

Lead/presiding director roles become nearly universal: 96% of all S&P 500 boards have one.

Director backgrounds diversify: Boards recruit more division presidents, CFOs, and other senior executives, and 31% of new directors are first-time public company directors.

Meeting fees decline: Only 57% of boards pay them, down from 72% in 2001.

Equity compensation shifts to stock grants: 64% of companies pay equity in addition to the retainers, up from 42% in 2001. Only 51% grant stock options to directors, a sharp decline from 72% in 2001.

Limits on additional directorships emerge:  27% of boards specify limits on the number of other boards directors may serve on.

Insights

Active CEOs decline as new directors: Only 33% of new independent directors are active CEOs, down from 41% in 2002 and 53% in 2000.

Insights

Board independence continues to rise: 82% of directors are independent.

Women are represented on nearly all boards: 90% of boards have at least one woman director.

Chair/CEO separation increases: 39% of companies separate the roles, up from 16% in 1998.

Independent chairs remain rare: Only 16% of boards have one.

Stock grants surpass options: Only 40% of boards offer stock options, down from 74% five years earlier.

Majority voting gains traction: 56% of boards require directors who fail to secure a majority vote to offer their resignation.

Insights

Racial/ethnic board diversity expands: Underrepresented minorities make up 15% of directors on the 200 largest S&P 500 companies.

Restrictions on outside board service increase: Two-thirds of boards impose limits, up from 27% in 2006.

Insights

Chair/CEO separation reaches 40%: Up from 23% in 2000 and 37% in 2009.

Independent chairs grow slowly: 19% of boards have one, up from 9% in 2005.

Majority voting becomes standard: 71% of boards require directors to offer to resign if they fail to secure a majority vote.

Declassified board structures accelerate: 72% of boards set one-year director terms, up from 51% in 2005.

Performance evaluations become widespread: 96% of boards report conducting annual performance evaluations; over 25% evaluate individual directors.

Term limits remain rare: Only 5% of boards specify them; 63% explicitly say they do not have them, and 32% do not mention them. 

Insights

Restrictions on outside directorships increase: 74% of companies limit the number of other boards their directors can serve on, versus 27% in 2006.

Insights

Boards age: The average age of independent directors rose to 62.6 (from 60.1 in 2002). 38% of boards average 64 or older, up from 14% a decade ago.

Active CEO/COO appointments decline: Only 25% of new independent directors are active CEOs, COOs, chairs, presidents or vice chairs (down from 41% in 2002). More companies recruit retired executives and division/function leaders.

Shift to equity compensation: 58% of director compensation is paid in equity (50% stock awards, 8% options). Only 25% of boards grant stock options (down from 77% in 2002).

Insights

First-time directors on the rise: 38% of new directors are “first-timers” (no prior public company board experience), up from 30% in 2012.

Retired executives make up nearly half of new directors: For the first time, almost half of new directors are retired.

Board independence plateaus at a new high: Independent directors make up 85% of all S&P 500 board members, the highest since tracking began and consistent with today’s percentage.

Audit committee financial expertise grows: 35% of audit chairs are financial executives, up from 7% in 2003.

Separation of CEO and chair continue: 45% of S&P 500 boards split the CEO and chair roles. 25% of boards have an independent chair (up from 16% five years earlier).

Annual elections become standard: 91% of boards have annual director elections, up from 83% in 2012 and just 40% in 2003.

Majority vote policies expand: 84% of boards require directors who failed to secure a majority vote to offer their resignation (up from 56% in 2008).

Milestone

Spencer Stuart celebrates having helped place 1,000 women on corporate boards.

Insights

Female representation among new directors reaches new high: Female representation reaches 30% (an all-time high) of all new directors, up from 24% in 2013.

Insights

Boards grow older: The average age of independent directors is now 63, two years older than a decade ago.

Insights

Boards broaden talent search: Only 36% of new directors are active or retired CEOs, chairs, presidents or COOs (down from 47% a decade ago).

Board diversity milestone: For the first time, over half of incoming directors are women or minorities (50%), with 36% women (a 20-year high) and 20% minorities

First-time directors surge: 45% of new directors are serving on their first public company board (record high)

CEO outside board service declines: Only 37% of active CEOs serve on outside boards, down from 52% in 2007.

Majority of boards separate chair/CEO roles: 51% of S&P 500 boards split the roles, up from 35% in 2007.

Insights

Independent chairs increase: Over 30% of boards have an independent chair, up from 28% last year and 16% in 2008.

Lead/presiding directors decline: 80% of all S&P 500 boards have one, down from 95% a decade ago.

Stock grants dominate compensation: 56% of director pay is in the form of stock grants. Only 12% of boards grant stock options, down from 40% in 2008.

Meeting attendance fees rare: Only 10% of boards pay them, down from 45% a decade ago.

Insights

Diversity reaches new high: 59% of new directors are diverse (women and underrepresented minority men), up from 50% in 2018.

Non-traditional backgrounds dominate newly appointed directors: 65% of new directors come from outside CEO/chair/president/COO ranks; 23% are division/function leaders; 27% have financial experience.

Lead/presiding directors decline: Present on 75% of boards, down from 80% last year and 95% a decade ago.

Focus on overboarding continues: independent directors serve on 2.1 boards on average; 59% of S&P 500 CEOs serve on no outside boards (up from 51% a decade ago).

Performance evaluations expand: 98% of boards report conducting annual evaluations; 44% include individual director evaluations, up from 38% last year and 22% a decade ago.

Milestone

Spencer Stuart celebrates having helped place over 2,000 women on corporate boards.

Insights

Technology leads director sourcing: 24% of new independent directors come from the technology industry, up from 10% a decade ago.

Committee structures evolve: 13% of boards now have a stand-alone risk committee (up from 4% in 2010), 12% have a science and technology committee (up from 9% in 2015), and 11% have an environment, health, and safety committee (up from 8% in 2015), reflecting increased attention to crisis management, risk oversight and digital transformation

Skills matrices gain traction: 38% of boards include a director skills matrix in their proxies, highlighting relevant experience, skills and backgrounds.

Insights

Diversity reaches new heights: 72% of new independent directors are diverse* up from 59% in 2020.

Pandemic impacts board meetings: Boards meet 9.4 times on average, up from 7.9 in 2020 and 8.4 a decade ago; virtual meetings become common.

* Uses Nasdaq’s former definition of diversity: directors who self-identify as female and/or underrepresented minorities (Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities), and/or LGBTQ+.

Insights

Meeting frequency normalizes: Boards meet 8.3 times on average, down from 9.4 in 2021 but still above pre-COVID levels.

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