In popular Fantasy, the company’s board seat seems to be the safest in the business. Board members seem to get paid — often handsomely — to attend a few meetings a year and to nod on purpose as the chief executives donating strategy. They rarely make the news unless the occasional tut-tut results CEO Being shown the door, or an activist investor campaigning for a seat at a prominent company (as has happened in recent months at Disney, Salesforce, and Tesla). Once the wayward director is out or the campaigners’ campaign ends, either because it succeeds or, as in the case of Disney, a competitor is appeased with perks, the board reverts to comfortable obscurity.
In fact, low-level shareholder representatives have never been busier. They are expected to help presidents weather war, geopolitical strife, the return of hyperinflation, climate change, and technological disruption, all in the wake of a once-in-a-century pandemic. Tighter corporate governance rules have forced corporate directors to be more accountable. They are also more likely to be compensated in stock than was the case in the past, with their incentives aligned with those of other shareholders.
Perhaps as a result, they work harder and longer than before, often adding to their demanding day jobs as executives at other companies. “It’s not uncommon for two-day meetings to take place,” says Crawford Gillis, who chairs the board of British bank Barclays. “This would have been very unusual ten years ago.” At least they get dinner.
All new demands are reflected on the members of the board of directors in what is considered to be a desirable composition of the board. Thirty years ago, directors were about more than window dressing, recalls Charles Elson, a veteran board member and corporate governance expert at the University of Delaware. He says the management teams “basically ran the show”. The boards were filled with friends of the directors or other board members. These days, a self-respecting board should include an expert on supply chains, the Federal Reserve, China, ESGAnd ai-The list goes on. Put above those requirements for “diversity, equality, and inclusion”—that is, ensuring that not every person is a white male—and getting the board together has become high-stakes corporate sudoku.
Many board members agree that the board is underperforming, according to a survey of more than 700 public company directors in America in 2022. swc, a consulting company. When asked to rate their fellow board members, nearly half of the directors said at least one needed to be replaced. One in five respondents will replace two or more. Less than half thought their peers had a strong understanding of environmental, social and governance issues (and this does happen ESG mean) or cyber security. A fifth believed that the other board members were reluctant to challenge management, which is ostensibly one of their main jobs.
Boards were also indiscriminately acquitting themselves on another crucial task: making sure the right person sat at the corner desk. Directors have reined in the cascade in recent years, first amid uncertainty about the COVID-19 pandemic, and then amid mounting geopolitical and economic concerns. a class CEOBoards of directors in 2021 were ousted from the Russell 3000 index of US companies by 1.4%, down from the historical average of nearly 6%, according to data from the Conference Board, a research organization, and ESGAUGEAnalytics company. There is no head in s&s The 500 Indexes of the largest US companies got the boot that year. CEOThey were urged to plan an exit to put it off.
As new CEOs have been named, internal hires have risen. As of June 2022 about nine out of ten CEO appointments in s&s 500 people were Insiders, the highest since enrollments began in 2011. In November, Disney rehired its longtime retired president, Bob Iger, to bring some magic back to the Magic Kingdom (notwithstanding that Mr. Iger chose his own magic- lower caliph).
For councils, dealing with such challenges requires fresh blood. It is not easy to inject. One problem is making room for newcomers. Few companies are willing to impose limits on board members; Only 6% of companies in s&s 500 do so. If anything, retirement policies are becoming less popular: 67% of large US companies owned them in 2022, down from 70% in 2018. More than a quarter of managers who have left s&s 500 plates in 2019 and served for more than 15 years. Some have been around for decades. Charlie Munger, who last month turned 99, has served on the board of directors of Berkshire Hathaway, an industrial conglomerate, since 1978. Reducing such veterans is a delicate act.
The alternative is to increase the size of the board. Between 2018 and 2022, Hessa s&s The 500 companies with more than 12 directors rose from less than 16% to nearly 18%. The obvious downside is that larger panels can get unwieldy.
When boards recruit replacements or additions, they run into another problem. A lot of new related experiences relate to areas that are the same, eg ESG or ai, new. This means that few potential candidates have it. So many companies are hunting in the same talent pool. That may help explain why boards are so expensive: average compensation for Russell 3000 directors has increased from $177,000 in 2019 to $205,000 in 2022. And more incest: about 65% of s&s There are 500 non-executive members on at least one board of directors, up from 58% in 2018 (see chart); One in ten sits on at least three. Anne Mather, former CFO of Pixar Studios, an animation company, sat on eight boards of directors at the start of 2022.
The demand is especially high for experienced directors who are not white or male. In Britain, a government-commissioned review of diversity in boardrooms was carried out at FTSE Companies have found that most still fail to get people of color on their boards. Mooney Mannings, a former barrister who held several non-executive positions at large British firms, says she was inundated with calls from recruiters for months after the killing of George Floyd sparked protests over racial justice in America — and caused a hiring boom for racial minority managers on both sides of the Atlantic. “Don’t they know anyone else?” she asked in exasperation.
Investors are waking up to the dangers of overworked managers who spend their time too little. In May, Twitter shareholders voted to strip Egon Durban, a venture capitalist, of his seat on its board after two proxy consulting firms warned that the seven board positions he was juggling at the time may have been too many. (Twitter’s board issue was definitively resolved in October when its new owner, Elon Musk, resolved it entirely.) In June, BlackRock, the world’s largest asset manager, voted against appointing Mather to the board of Alphabet, Google’s parent company, as part of a Her campaign is against “excess”. Ms. Mather kept her seat but has since resigned from Airbnb, a home rental service, and Arista Networks, a computer networking company.
The upshot is that companies will have to spread their networks more widely. As a result, hiring can take longer, especially if you refuse to enter a bidding competition with rival recruiters on compensation for directors, notes Peter Voser, a seasoned chairman of multinational corporations. ABB, a giant Swiss engineering firm headed by Mr. Fusser, took a long time to find a manager to fill one opening—two years to be exact. But in the end, I found the right person with the right skills and experience. and beavers waving away in the background. ■
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