How Corporate Governance Changed From 1986 to 2010

by Julie Hembrock Daum for Business Week, November 16th, 2010.

Spencer Stuart’s annual study of boards traces how corporate board practices—and membership—have evolved over the past 25 years.

When looking at a snapshot of corporate boards today vs. one from 25 years ago, it’s surprising to see how much has changed in board composition and governance. There are far fewer inside directors; more companies split the roles of chairman and chief executive officer; boards are smaller and more diverse, with older members; and boards meet less often. Still, these developments may ultimately seem modest as the impact of recent laws and regulations shapes board composition and boardroom dynamics over the next five years.

Spencer Stuart has tracked board composition, structure, and compensation for 25 years in its annual Spencer Stuart Board Index (SSBI) report. In its 25th edition for 2010, the firm looks at the evolution in board composition and the growth of board independence. In 1986, Spencer Stuart analyzed 100 randomly selected companies. Today, the SSBI analyzes the proxies of all 500 companies in the Standard & Poor’s 500-stock index and includes a survey of board practices. In 1986, the independence of boards was not an issue. Spencer Stuart wrote then about their “outside/inside composition.”

Indeed, a substantial number of directors considered “outsiders” at that time would not qualify today as independent. The average board size was then 15, with a three-to-one ratio of outsiders to insiders; the average board now has 11 members, with a five-to-one ratio of independents to nonindependents. In 1986, the CEO was the sole insider on fewer than a handful of boards. Today, the CEO is the only insider on more than half of all S&P 500 boards. The 1986 index did not address the separation of the chair and CEO roles; the percentage of female and minority members; functional backgrounds of directors; majority voting; succession planning; or board self-evaluation. These issues had not yet surfaced. (continue reading… )



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