The changing profile of directors and trends in corporate governance
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The Changing Profile of Directors and Trends in Corporate Governance. Presented by: William B. Reeves, Atlanta September, 2007. Spencer Stuart’s Board Index 2006 - Highlights. Board Composition: Average board size stable at 10.7

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The changing profile of directors and trends in corporate governance l.jpg

The Changing Profile of Directors and Trends in Corporate Governance

Presented by: William B. Reeves, AtlantaSeptember, 2007


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Spencer Stuart’s Board Index 2006 - Highlights

  • Board Composition:

    • Average board size stable at 10.7

    • Demand for independent directors increased 17% since last year

    • 31% of new directors had never before served on a public company board

    • Average age and retirement age are increasing

    • Women account for 15% of directors, no change over previous year

    • 96% of boards have a lead or presiding director in place (up from 36% in ’03)

    • Minorities account for 14% of directors *

    • Financial expertise in greatest demand, followed by CEOs **

      * Analysis of top 200 S&P 500 companies.

      ** From supplemental survey, 145 respondents.


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  • Compliance Requirements Met:

    Board independence is a reality

    • 81% of directors are independent (only 2 insiders on average)

    • On 39% of S&P 500 boards, CEO is only insider

    • 33% of boards have separated the Chair and CEO roles, up from 26% in ’01; however, only 10% of chairs are independent

    • Independence of key committees: audit, compensation and nominating committees comprise only independent directors


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  • Profile of new S&P 500 directors has changed

    (391 selected in 2006 for S&P 500)

    • Fewer active CEOs – 29% in ‘06; down from 47% in ‘01

    • 31% are first-time public company directors –an impressive group (e.g., $50B CFO, $20B head of mktg/strategy, $30B division president)

    • More women – 23% in ’06 vs. 16% in ’01. (However, women make up only 15% of all directors, which reflects only a slight increase from 12% in ’01 and no change since ’05)

    • Greater diversity of skills and experience

    • International experience and perspective are increasingly important

  • Mandatory retirement age and higher age limit more prevalent

    • More boards have mandatory retirement: 78% vs. 58% in ’01

    • But at older age: 62% at age 72+ vs. 34% in ’01


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  • Audit Committees: More emphasis on true financial expertise

    • Boards with 11 or more audit committee meetings annually: 37% vs.

      1% in ‘02

    • Fewer active CEOs serve as members: 23% vs. 30% in ‘01

    • 54% of boards designate more than one financial expert; 20% designate all audit committee members as financial experts

  • Audit chairs less likely to be CEOs

    • Fewer active CEOs: 19% vs. 27% in ‘01

    • More retired CEOs: 25% vs. 16% in ‘01

    • More active/retired CFOs: 10% vs. 2% in ‘01

    • More active/retired accountants: 9% vs. 2% in ‘01


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  • Board compensation has increased

    • Average cash retainer today of $63,600, is 12% greater than last year and 70% greater than it was in ‘01

    • Fewer boards paying meeting fees: 57% vs. 72% in ’01

    • But, meeting fees are higher: $1,955 vs. $1,535 in ‘01

    • More pay equity in addition to retainer: 64% vs. 42% in ‘01

    • Fewer pay with stock options: 51% vs. 72% in ’01

  • Committee compensation has also increased

    • 70% increase in average committee chair retainer: $9,100 vs. $5,354 in ‘01

    • More companies pay committee chair retainers: 84% vs. 57% in ‘01

    • Although down from 2001, majority of boards still pay committee meeting fees: 58% vs. 68%. And meeting fees are $1,500, up from $1,200

    • More companies have switched to paying committee member retainers: 29% vs. 13% in ‘01. Average retainers are $6,400, up from $5,600 in ‘01


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Spencer Stuart’s Board Index 2006 $179,056 (per Supplemental Survey)Supplemental Survey

  • Boards seek new skills and more diversity

    (145 boards surveyed)

    • Financial expertise - 75%

    • Active CEO/COO – 71%

    • Retired CEO/COO – 35%

    • International expertise – 52%

    • Technology expertise – 40%

    • Marketing expertise – 27%

    • HR expertise – 5%

    • Minority – 62%

    • Women – 50%


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  • CEO evaluation, succession, and compensation $179,056 (per Supplemental Survey)

    • Entire board increasingly responsible for CEO evaluation – 43% up from 13% in ‘01

    • 94% of boards discuss CEO succession at least once a year

    • Responsibility for CEO succession lies with compensation (44%) or nominating committee (36%), although many boards now cite that multiple committees or the entire board are responsible

    • 31% of boards surveyed still do not have an emergency succession plan

    • CEO compensation includes restricted stock (79%) and options (81%); 74% of companies say at least a portion of equity awards is performance based


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  • Shareholder engagement $179,056 (per Supplemental Survey)

    • 31% of boards have seen increase in shareholder efforts to contact the board

    • Majority voting and CEO compensation are the most frequently raised topics

    • 22% report that individual directors had direct contact with shareholders, most often the lead director


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Preliminary Findings from the 2007 Survey * $179,056 (per Supplemental Survey)

  • The profile of new S&P 500 directors continues to shift away from active CEOs and toward other corporate executives and first-time public company directors

  • Fewer active CEOs – 33%; down from 41% in ’02 and 53% in ’00

  • More active and retired senior corporate executives (e.g., division managers and functional unit leaders) – 21% vs. 7% in ’02

  • 33% are first-time public company directors

  • Mandatory retirement age more prevalent and older

  • 35% of boards have separated the CEO/chair roles, up from 32% in ’06 and 25% in ’02

  • More boards shifting toward lead director designation; 40% designate lead director, up from 28% in ‘04

  • Total director compensation is now disclosed in proxies; all-inclusive average total compensation is $211,179

  • Committees meeting more; number of meetings for Big 3 committees all up from last year

* Not yet released


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Future Trends $179,056 (per Supplemental Survey)

  • More first-time directors

  • Greater need for director education

  • More new directors are likely to be heir-apparent executives versus active CEOs

  • More diversity in the boardroom

  • More strategic focus in board composition

  • Board agenda: succession and strategy


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