The inaugural 2016 Global Board of Directors Survey of more than 4,000 directors of both public and large, privately held companies from 60 countries conducted by Spencer Stuart, the WomenCorporateDirectors (WCD) Foundation and several academics explored “in depth how boards think and operate,” comparing the views of male and female directors, as well as directors of public and private companies. Before you say “oh no, not another survey,” take a look at the results, some of which (especially the gender- and age-based data) were very interesting. In particular, the survey focused on five key areas:
- Political and economic landscape
- Company strategy and risks
- Board governance and effectiveness
- Board diversity and quotas
- Director identification and recruitment
The authors intend to conduct additional studies of specific governance areas, such as board composition, risk areas and board strengths and weaknesses.
The report indicates that one of the most surprising results was the economic uncertainty and pessimism about growth, with 63% of directors in North America and Western Europe reporting uncertain economic conditions. Other key findings include:
- Directors not “feeling the Bern”: the top three political issues identified by all directors were the economy (65%), the regulatory environment (59%) and cybersecurity (38%). Cybersecurity was more of a concern among public company directors (43%) than private company directors (32%) and among female directors (47%) than male directors (36%). Not many directors were “feeling the Bern”: only 4% of directors viewed economic justice as one of the three most relevant political issues. According to the survey, personal tax rates were identified by male directors as among the top three issues more frequently than economic justice or equal rights for women (although, to be fair, all of them rated relatively low). Equal rights for women were a top issue for 2% of men and, surprisingly, only 11% of women.
- Women directors report higher levels of concern about risk than male directors. Almost across the board, female directors reported higher levels of concern about various risks to their companies than male directors, including concerns about activist investors, cybersecurity, enterprise, regulatory and supply chain risk. However, female directors also viewed their companies’ levels of readiness as higher than did their male counterparts.
- Attracting and retaining top talent was ranked as a challenge to achieving strategic objectives most often (41%) by directors, followed by the regulatory environment (39%) and global competitive threats (32%). Private company directors were more often concerned about attracting talent than public company directors (48% v. 38%), while public company directors were more often concerned than private company directors about the regulatory environment (43% v. 32%) and global competition (35% v. 25%). Male directors were more concerned about attracting talent than female directors (43% v. 36%), and female directors mentioned low or changing consumer demand as a challenge more frequently than male directors (27% v. 20%). Surprisingly, only 5% of directors surveyed identified activist shareholders as key challenge.
SideBar: Maybe that explains why, according to a recent NACD survey, almost half (46%) of boards say they “do not have a plan in place to respond to a challenge from an activist investor,” even though over 20% “have been approached by an activist investor in the past year” (emphasis added). See this PubCo post.
- Directors evaluated cybersecurity as the least effective board process and rated compliance and staying current on the company as the most effective. On average, directors rated their board’s overall performance as slightly above average (3.7 out of 5). Boards also gave themselves relatively high marks for appointing themselves: board composition (e.g., appointing directors with skills and experience the board needs) rated a 3.8 worldwide and 3.9 in North America. Generally, directors of public companies ranked the effectiveness of board processes on a wide variety of topics as higher than did private company directors (3.8 v. 3.4).
- Worldwide, 36% of directors were subject to term limits at their companies, with an average of six years, and 26% were subject to mandatory retirement ages, with an average retirement age of 72. However, location appears to have made an enormous difference: 64% of directors were subject to term limits in Western Europe, while only 19% were subject in North America. At the same time, 60% of directors favored adoption of term limits (with an average term of 10 years), including 58% in North America and 70% in Western Europe. (See this PubCo post reporting on a similar result in another study.) Interestingly, 43% of directors believed that, after about 10 years, directors lose their independence. (See this PubCo post and this PubCo post. )
- Not surprisingly, female directors were more in favor of tools to trigger board turnover than male directors. First, a greater proportion of women directors than men were on boards that were subject to term limits (42% v. 33%) or mandatory retirement ages (33% v. 23%). Perhaps we can speculate that those tenure limitations enabled seats to become available for the appointment of women? The proportion of female directors was highest (20% or more) in the consumer staples, financial services/professional services and consumer discretionary sectors, and lowest in IT/telecom (13%). A greater proportion of female directors were also in favor of term limits (68% v. 56%) and mandatory retirement ages (57% v. 39%) than were their male peers. And a larger percentage of female directors than male directors believed that directors lose independence after a certain period of time (49% v. 41%), and for women, the period of time was shorter (9 years v. 11 years).
SideBar: Why is it important for companies to have women on boards? As argued in Bloomberg, while “[e]quality is a worthy goal on its own terms, of course….for the corporate world, the better rationale for gender diversity is financial…. Companies with at least one female director had better returns for six straight years.” And the benefits go beyond the financial. See this PubCo post.
- Predictably, the survey showed that more directors of public companies were independent than directors of private companies (74% v. 54%). (Rules and listing requirements will have that effect….) However, the percentages of female directors were not that different (19% for public companies v. 16% for private companies) and the proportions of ethnic minority directors on their boards was the same at 7%, irrespective of public or private status.
- Likewise, predictably, men and women attributed the reasons for the consistently low numbers of women on boards to different causes, and there were generational differences as well. For example, 69% of female directors in the 55-to-60 age group attributed the low numbers to the failure to rank diversity as a top priority in board recruiting, while only 19% of men in that age group identified that as the main reason. (See this PubCo post.) In that same age cohort, 39% of male directors said the “lack of qualified female candidates” was the primary reason for the low numbers of female directors, while only 8% of female directors cited that as the main reason. However, there may be a generational shift in attitudes: in the over-65 cohort, only 15% of men attributed the low numbers of female directors primarily to the domination by men of traditional networks, while 43% of women directors in that group identified that as the primary reason. By comparison, 29% of younger male directors (age 55 and under) said that the main reason was that traditional networks tend to be male-dominated, and 40% of women directors in that same cohort agreed. One of the study authors commented that “‘[i]t’s often hard to see an informal ‘network’ if you are in the middle of it, but you can see it very clearly when you’re on the outside.’”
- Overall, 73% of directors in the survey opposed boardroom diversity quotas; about 49% of female directors supported them (almost half of whom were age 55 and younger), but only 9% of male directors did. However, among women, age made a significant difference: 67% of the youngest generation of women directors (age 55 and younger) supported the concept of boardroom diversity quotas, compared with 36% of female directors over 55. But even in the youngest age group, only 11% of men supported quotas and the percentages went down for older male directors. One of the authors of the study commented that “‘[a]lthough we are hearing more talk about the importance of diversity from boards, it’s not necessarily translating into numbers. Unfortunately, we haven’t seen as much progress as we were hoping for compared to our past survey on the diversity of boards.’”
- Overall, 65% of directors in the survey even opposed any government requirement to disclose specific practices designed to seat diversity candidates, including 66% of the youngest group of male directors, while 56% of women in that age group favored these disclosures. Similarly, 68% of male directors in the 61-to-65 age group opposed disclosure requirements, while 57% of female directors in that age cohort favored it. These disparities tend to taper off in the over-65 age group.
SideBar: In March, Rep. Carolyn Maloney (D-N.Y.) introduced H.R.4718, the Gender Diversity in Corporate Leadership Act of 2016, which would direct the SEC to establish a Gender Diversity Advisory Group, composed of government, academic and private sector representatives, to study strategies to increase gender diversity among board members and would require the SEC to adopt rules mandating proxy disclosure of the gender composition of the issuer’s board of directors and nominees for the board of directors. Maloney said earlier this year that the legislation would be modeled on policies in Canada and Australia. In discussing the proposed legislation, The Washington Post reported that Australia’s disclosure policy has been effective: the percentage of women on corporate boards there has jumped from 10.7% in 2010, when the policy was adopted, to 17.3% in 2015, according to Catalyst. The Post also reported that earlier versions of the bill had required companies to disclose their strategies to improve board gender diversity and, if they failed to comply, to explain why. (See this PubCo post.)
- The method ranked most frequently as the most effective way to build diversity on boards was “board leadership (chair, lead director, nom/gov chair) serving as champions of board diversity.” Female directors ranked next “CEOs serving as champions of board diversity,” while their male peers ranked as the next most effective method to achieve diversity “developing a pipeline of diverse board candidates through director advocacy, mentorship and training.” Male and female directors viewed the least effective way to be “shareholders actively demanding greater board diversity.”
- Male directors indicated that they were most often initially introduced to the board either because they knew other directors (30%) or the CEO (27%), while, notably, female directors were introduced most often through an executive search firm (36%) or through another director on the board (33%). According to one of the study authors, “’[s]earch firms may be able to open doors that networking opportunities may not have been doing until relatively recently, at least for women.’” Only 1% of male directors thought gender played a significant role in their appointment to the board, while 39% of their female peers thought gender was a significant factor in their appointments.