Directors Ride Through Rough Times
from
November/December 2002
by Colin Leinster, Editor
The executive search firm Korn/Ferry International, which began
measuring director capabilities and attitudes in 1972, noted in last
year’s study that boards had perhaps never been better prepared to
provide the consultation and support needed to guide a company
successfully through rough times. And rough times, of course, is what
most companies got. Their boards were buffeted by a volatile economy
and stock market—and the shenanigans at a few companies cast wide
suspicion over governance in general.
What do directors think about all this? And how well are they prepared to help their companies not only survive the rough times but triumph over them? To find out, Korn/Ferry entered into a joint venture with Corporate Board Member to conduct what is the search firm’s 29th annual director study, and our first. It is the backbone of this special issue, which takes an exclusive inside look at the state of governance in the U.S. today. The data come from information in the proxy statements of 901 Fortune 1,000 companies, and from two separate surveys of some 15,000 directors. We did one by mail and the second, on corporate reform, by e-mail, and followed up both with a series of interviews by a team of writers and reporters. In addition to providing data, Korn/Ferry made a financial contribution to the joint venture. Editorial control, as always, remained solely with the editors.
In our interview process, we invited 100 directors to sound off on a number of hot governance issues, which they did with gusto (see “On My Mind,” which begins on page 26). We also asked them to list their frustrations, and those answers are a must-read for CEOs. A favorite topic: their time. Nearly 48% say they’re spending more hours on board matters than they did last year—and 46% say board meetings are lasting longer too. Survey data also suggest a future boardroom schism over top executive compensation, with a clear line drawn between the views of directors who also serve as CEOs and those who don’t. For example, among the latter group, 44% think top managers who receive stock as part of their compensation should keep it as long as they have their jobs. Only 29% of directors who are also CEOs think that way.
As the surveys and interviews showed, corporate governance at its best is a highly adaptable discipline that continues to adjust to a changing world. Almost all directors are concerned—and many are angered—because malfeasance by a few companies is inviting excessive government regulation for everybody else. But directors also want to be more effective, and some say more training would help. Holding CEOs to higher standards is a common aim, as is limiting the number of outside boards a CEO sits on. In fact, more than 81% say there should be a limit. And where the CEO doubles as chairman, nearly 60% of directors would like to see the board elect an outside lead director.
The full results of the study are available on our website (www.boardmember.com). Among other highlights, the threat of being sued remains real and worrying; 48% say they have turned down a board position because they felt the risk was too great. And 49% say directors’ and officers’ insurance coverage was a very important factor in their decision to join particular boards. A whole range of people, from good-governance advocates to directors themselves, say that compensation needs an overhaul (see “Are You Paid Enough?” on page 80).
There were some disconnects between what board members would like to see and what they settle for. For example, 71.3% say they’d like to get together without the CEO present—but only 44.8% are on boards that offer that opportunity. Similarly, more than 75% believe their individual performance should be regularly evaluated, but just 19% serve on boards where this happens. And while nearly 54% say there should be a limit to the number of boards that outside directors sit on, fewer than 13% of their companies impose any ceiling. Sorry, but this sounds wimpy. Making such changes is a director’s call.
The most important factor in determining good governance? Those
surveyed say it’s a board made up mostly of outside directors. The good
news here is that companies continue to put together such boards. Poll
respondents differed on what constitutes a perfect mix, but the average
vote was for two insiders and eight outsiders. Hardly coincidentally,
perhaps, that was also the average mix for the boards that respondents
serve on. Some final details: Reflecting the persistent boardroom
reality, our poll participants were overwhelmingly male—91.5% to 8.5%.
Of those surveyed, 29.9% hold the title of CEO, 25.3% are board
chairmen, and 23.2% are presidents. The largest age bracket is 55 to 64
(42%), followed by 65 to 74 (30%) and 45 to 54 (20%). We have a
23-year-old director too, the youngest in our database. His boardroom
perspective appears on the last page. As you’ll see, his is a lofty
view.
