New Study Provides Comprehensive, Hard Data on Hot Topic of Corporate Board Refreshment


logo irrcS&P 1500 Benchmark Analysis Finds Progress on Board Renewal, But That Investor Concerns on Tenure and Diversity Are Warranted

The intense focus that investors and others have placed on board refreshment has begun to pay off. But, structural trends and governance practices that encourage longer tenures could slow, or even reverse this progress over the next decade, according to a new study.

 Board Refreshment Trends at S&P 1500 Firms: 2008 To 2016, commissioned by the Investor Responsibility Research Center Institute (IRRCi) and conducted by Institutional Shareholder Services Inc. (ISS), shows that boards are adding fresh faces following a multi-year period of board roster stagnation in the wake of the financial crisis. Nearly one out of every ten directors was new to their boards in 2016. At a corporate level, more than one-half of S&P 1500 boards added one or more new directors to their rosters in 2016.

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As a result, the average tenure of an S&P 1500 board member declined to 8.7 years in 2016 from nine years three years earlier, although median tenure held steady at seven years.

However, that recent surge in renewal obscures some longer-term trends towards longer-serving and older directors. Directors with at least ten years of board service now occupy an eye-catching 38 percent of board seats and about half of those are held by directors with 15 or more years of tenure. Also, directors in their seventies and eighties have increased their share of directorships to more than 20 percent of all directorships; the average director age rose two years for the study period, from 60.5 years in 2008 to 62.5 years 2016; and the proportion of directors aged less than 50 declined, despite much corporate, media and investor discussion of the need for millennial- and technology-focused directors.

The pace of change with respect to diversity in the boardroom has been sluggish. As of 2016, women held only 17.8 percent of S&P 1500 board seats, and minority directors held slightly more than ten percent of board seats. Those directorships are far from uniformly distributed. For example, larger cap firms in the S&P 500 are likely to have more than one minority director, while the typical headcount of minority directors at small cap companies in the S&P 600 is zero.

One positive change with respect to diversity was a surge in refreshment in 2016. This included 24.4 percent female and 13 percent ethnic or racial minority director nominees, more than the historic norms.

“Who sits around the board table matters,” said Jon Lukomnik, IRRCi executive director. “The directors of a company are responsible for selecting the CEO, the corporate strategy and the capital structure. So it’s no wonder that board composition and refreshment are among the hottest topics for investors and issuers. The good news is that boards seem to be listening and increased refreshment recently, but it’s off a very sluggish trend line.”

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