Board Composition and Refresh - NACD BoardVision
Today directors are thinking more strategically about diversity, expertise and succession planning. In this edition of BoardVision, Henry Stoever, Chief Marketing Officer at NACD is joined by Julie Daum, Practice Leader for North American Board Services at Spencer Stuart as they examine highlights from the 2014 Spencer Stuart Board Index.
Henry Stoever: Welcome to NACD BoardVision. My name is Henry Stoever and I'm the Chief Marketing Officer for NACD. Today on this episode of BoardVision I'm joined by Julie Daum. Julie welcome.
Julie Daum: Thank you.
Henry Stoever: On this episode of NACD BoardVision Julie and I are going to be talking about board composition, director succession planning and also board refresh in general. I want to, kind of, cover three different areas in our discussion today. One is what your research is showing, what you're learning from the marketplace. Two, what you're learning from investors. And number three, what you're sharing with your clients, some of the largest companies in the world, on how they can maximize effectiveness from a director succession planning perspective. So why don't we start at the top and, kind of, just share with our visitors and our viewers what your research is showing.
Julie Daum: So we do an analysis every year of the S & P 500 and we just released this year's survey results from the proxy statements and what we found was there was a little more turnover this year than there has been in the past couple of years. So that, I guess, is good news. But in fact there's still only about 7% of the S and P 500 board seats that turned over this year. So turnover is still very slow in U.S. boards and as we know we are living in a very fast paced world where things are changing very quickly. And so there are some who think that that slow pace that we're seeing of board turnover is something to question. And I think the reason that we're seeing such a slow amount of turnover is from some of the other information that we study and that is that U.S. boards tend to use retirement age to initiate turnover. And we've seen boards really increasing that age so now 92% of boards that have a retirement age have it set at 72 or over. 30% are set at 75, which is a huge increase.
Henry Stoever: We find the same thing in our research over the years from a, kind of, limiting factor perspective. Do you see anything from a board evaluation perspective that helps facilitate that or might facilitate that even more in the future?
Julie Daum: That would be the way to go if you're not really going to have a-- if you're going to use retirement age of 75 as your proxy for board turnover you really do need to be assessing the people on the board. You can't let everybody stay until they're 75. But when we ask companies if they are doing board evaluations, individual evaluations, only about a third of them say they are. So everybody does look at their board as a whole and also do committee evaluations but not that many do individual evaluations and we're not seeing a trending up at all.
Henry Stoever: What are you learning from your investors that might be counter to what you're hearing from the research or similar to what you're hearing from the research?
Julie Daum: I think what we're hearing is a renewed interest from them on who's in the board room and they are not saying they want to make judgments on individual directors because it's very hard to do from the outside. You don't really know who's an effective director in the room. But they want to understand what the board's thought process is in methodology for getting turnover. And so they don't want to judge somebody and say oh well so and so's this age we're going to vote against them or they've been here for 20 years but they want the board to feel like the board has taken responsibility and ownership of that but they are concerned. So if you look at our tenure statistics in the U.S. we are significantly, significantly higher than any other country. So 40% of our companies have a tenure that's average tenure of over nine years. 20% have over 12 years and 10% have over 15 years average tenure. And this is concerning to the institutional shareholders who, as I said in the beginning, see a world that's moving very quickly and yet they see a very static board room.
Henry Stoever: What about diversity? We all know that diversity in the board room is a hot topic and it's not new and it's not going away. Did you learn anything new in your research about diversity and how that might, kind of, link to the skill sets matrix and are investors looking for that?
Julie Daum: Diversity has become a more important topic this year than it has been for a while. So it's obviously been a topic over the years but it does ebenflow and it is more important now and if you ask board members what they're looking for more than half of them will say we're looking for diversity, either gender or racial diversity in the room. They also are thinking about it in a slightly broader context now. They're also thinking about we probably should have somebody who's got international experience, for example, somebody who may not be American. But yes it has. People are really focused on it and I'm not sure if that's because there's been such a focus overseas with the quotas in some countries and a real emphasis on it that where you see now that there are many countries that have more, a larger percentage of women on board than we have. As a result of that I think you're seeing the conversation increase here.
Henry Stoever: Is there anything else Julie that you'd like to share with us today because it's such a rich topic and we could probably talk for hours on it.
Julie Daum: I just think that we are going to see-- We saw the audit committee come under pressure. We saw the comp committee come under pressure and I think the government's committee is now going to see a little of that same kind of attention that the other committees got. And so I think this is-- this is just-- It's not this year's topic. It's going to be a recurring theme I think going forward.
Henry Stoever: Thanks Julie for joining us today on this episode of NACD BoardVision.
Julie Daum: Thank you.
Henry Stoever: On behalf of Spencer Stuart and NACD I'm Henry Stoever and this is BoardVision.
- 2014 Spencer Stuart Board Index Highlights
- 2014 Spencer Stuart Board Index
- Board Succession Planning BoardVision Powerpoint Slides
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