Technology has created a global, fast changing business environment that is unlike any we’ve experienced before. Leading and managing companies of any size is more complex and requires new skills. Executive leaders are facing higher expectations and increased transparency, and the board is no different. What can we learn from insights on corporate boards in 2019?
Today’s investors are data driven, and they are paying closer scrutiny to board roles and responsibilities. Many expect a more hands on approach in business strategy from the talent pipeline to the corporate culture. The quality of the board is based on its composition, and some board members, like those who retired long ago, may be challenged to keep up with the increasing pace of change in today’s business landscape.
To understand what is happening and provide insights on corporate boards, Russell Reynolds recently co-sponsored the 2019 edition of Corporate Board Practices in the Russell 3000 and S&P 500, a study led by The Conference Board. The report is broken down into four parts, (i) Board Organization, (ii) Director Profile, (iii) Director Election and Removal, and (iv) Other Board Policies. Below are the highlighted findings of the report to provide insights on corporate boards in 2019.
Directors are in for a long ride
- Their average tenure exceeds 10 years. About one-fourth of Russell 3000 directors who step down do so after more than 15 years of service.
Despite the demand for more inclusiveness and a diverse array of skills, companies continue to value prior board experience in their director selection
- Only a quarter of organizations elect a director who has never served on a public company board before.
Corporate boards remain inaccessible to younger generations of business leaders
- The highest number of directors under age 60 are seen in new-economy sectors such as IT and communication services. Only 10 percent of Russell 3000 directors and 6.3 percent of S&P 500 directors are aged 50 or younger.
Progress on gender diversity of corporate directors is being reported, there’s still room to grow
- A staggering 20 percent of firms in the Russell 3000 still have no female representatives on their board. Moreover, even though women are elected as corporate directors in larger numbers than before, almost all board chair positions remain held by men (only 4.1 percent of Russell 3000 companies have a female board chair).
Periodically evaluating director performance is critical to a more meritocratic and dynamic boardroom
- However, even though many board members consider the performance of at least one fellow director as suboptimal, in the Russell 3000, only 14.2 percent of companies disclose that the contribution of individual directors is reviewed annually.
Among smaller companies, staggered board structures stand in the way of change
- Almost 60 percent of firms with revenue under $1 billion continue to retain a classified board and hold annual elections only for one class of their directors, not all.
Though declining in popularity, a simple plurality voting standard remains prevalent
- This voting standard allows incumbents in uncontested elections to be reelected to the board even if a majority of the shares were voted against them. In the Russell 3000, 51.5 percent of directors retain plurality voting.
Only 15.5% of the Russell 3000 companies have adopted some type of proxy access bylaws
- Such bylaws allow qualified shareholders to include their own director nominees on the proxy ballot, alongside candidates proposed by management. In all other companies, shareholders that want to bring forward a different slate of nominees need to incur the expense of circulating their own proxy materials.
The report provides a variety of in-depth examples across industries and is well worth a full read for context and specific data points.
If you have questions on your current board composition, or would like help in filling a board seat, please send us a note. One of our retained executive recruiters will respond quickly with some suggested times to speak.