Low Board Turnover Suggests Need For Greater Succession Planning

[New York] — October 7, 2014 — The 2014 Spencer Stuart Board Index reveals that S&P 500 board turnover is only seven percent, relatively low compared with a decade ago. The index, an analysis of S&P 500 proxies combined with a survey, is in its 29th year and is the definitive study of board trends, composition, organization and compensation.

In the 2014 proxy year, 371 independent directors joined S&P 500 boards, a 9 percent increase in director recruiting over 2013 and a 26 percent increase in the past two years. However, the rise in new directors was notably 16 percent lower than a decade ago, when 443 new directors were added S&P 500 boards. The lack of board turnover is a concern because a recent study has indicated that companies that turnover at least one director a year out-perform peers.

“We live in a fast-paced, changing world and need outside directors with relevant experience to serve as advisers to the board and management on current and critical issues,” said Julie Hembrock Daum, Leader of Spencer Stuart’s North American Board Practice.

Adding to the need for succession planning is the gradual aging of today’s S&P 500 boards. The average age of independent directors is now 63.1 years versus 60.5 a decade ago, and 45 percent of S&P 500 boards have an average age of 64 or older, compared with 16 percent of boards in 2004. Many boards have increased mandatory retirement ages contributing to the older average age of boards. Of 361 boards specifying a retirement age, 30 percent now set it at 75 or older, up from 24 percent a year ago while a combined 92 percent set it at 72 or older.

The average tenure on S&P 500 boards is 8.4 years, while 16 percent have an average tenure of 11 or more years. Term limits remain uncommon with only 16 S&P 500 boards specifying a term limit for directors.

“Boards have stepped up succession planning for CEOs and should apply the same rigor to themselves to ensure they have the skills and experience to meet today’s and tomorrow’s business needs,” said Daum.

More than half (53 percent) of new independent directors are retired, compared with 39 percent of new directors in 2009. Active CEOs and presidents comprised 22 percent of new independent directors in 2014 versus 33 percent a decade ago.

Thirty percent of new independent directors are women, the highest ever – a demonstration that boards are more conscientious of adding diversity in the boardroom.

Finding new directors can become an issue, since boards are placing limits on directors’ ability to serve on other boards. 75 percent of S&P 500 boards have established some restriction on other corporate directorships for their board members, compared with 27 percent in 2006.

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 55 offices in 30 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.