A new report from The Conference Board reveals that boards are increasingly electing independent board chairs. In the S&P 500, the share of independent board chairs increased from 30 percent in 2018 to 37 percent as of June 2022, while the share of companies combining the chair and CEO roles decreased from 49 percent to 44 percent. These changes are not being driven by an overriding wave of shareholder sentiment, but rather by internal governance and business reasons, including an increase in the level and scope of responsibilities of US corporate boards.
Additionally, boards at larger companies in particular are holding more meetings than before the pandemic—a trend likely to continue: Whereas S&P 500 companies held 7.8 meetings on average in 2019, the average rose to 8.3 in 2021. Companies are also experimenting with committee structures to address the expanding set of ESG risks and growing workloads. While public companies with under $5 billion in annual revenue typically have just three committees, larger companies tend to have four or five standing committees. This reflects that larger companies have moved beyond simply satisfying the stock exchange listing standards and other regulatory requirements.
The report also reveals that smaller companies are seeing a decrease in independent chairs with business strategy experience. In the Russell 3000, the share with such experience decreased from 79 percent in 2018 to 76 percent in 2022—and is poised to further decline in the years ahead.
The report includes insights and data—as recent as June 2022—relating to board leadership, meetings, and committees at S&P 500 and Russell 3000 boards. It is the second in a three-part series, with the first report examining board composition and the third report (to come) examining board refreshment.
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Findings and insights from the new report include:
Board Leadership
The trend toward board chair independence continues, especially at larger companies.
- Independent board chairs increase:
- S&P 500: The share increased from 30 percent in 2018 to 37 percent in 2022.
- Russell 3000: The share inched up from 42 percent in 2018 to 45 percent in 2022.
- CEO-board chairs decrease:
- S&P 500: The share of companies combining the roles decreased from 49 percent in 2018 to 44 percent in 2022.
- Russell 3000: The share ticked down from 37 percent in 2018 to 35 percent in 2022.
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“A likely driver of the rise in board chair independence is the increased workload of boards and management. Both are contending with multiple crises, fundamental transitions in business models, and growing demands for companies to address ESG issues and the needs of stakeholders,” said Merel Spierings, author of the report and Researcher at The Conference Board. “Against the backdrop of increased workloads, CEO succession events—which have recently seen an increase and may remain elevated in the coming years—are often an opportune juncture for the board to reconsider its leadership structure and separate the two positions.”
At larger companies, independent chairs with business strategy experience increase. But smaller companies see a decrease—a worrisome trend that may accelerate.
- Increase in the S&P 500: The share of directors with business strategy experience increased from 76 percent in 2018 to 79 percent in 2022.
- Decrease in the Russell 3000: The share decreased from 79 percent in 2018 to 76 percent in 2022.
- The share dropped from about 68 percent in 2018 to 63 percent in 2022.
- Why this trend may worsen in the Russell 3000: The share of directors with strategic experience in the Russell 3000—the primary pool from which independent chairs are drawn—declined even more:
- The share dropped from about 68 percent in 2018 to 63 percent in 2022.
“Having strategic experience is critical for an independent chair in collaborating with the CEO, setting the board agenda, managing board conversations, and serving as a liaison between the board and management,” said Paul Washington, Executive Director of The Conference Board ESG Center. “Even more importantly, that kind of experience is essential in helping to identify from board discussions key opportunities and risks that should be addressed by management and at future board meetings.”
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Board Meetings
The average number of board meetings has decreased since COVID’s first year, but levels remain elevated, especially at larger companies.
- 2017—2019: In the years prior to the pandemic, boards at companies of all sizes met approximately eight times annually on average.
- The start of COVID, 2020: In the S&P 500, the average number of meetings rose to 9.1; in the Russell 3000 it rose to 9.5.
- 2021: Following the first year of COVID, the average number dropped but remained higher than it was pre-pandemic. This is especially the case at larger companies: 8.3 in the S&P 500 in 2021 versus 7.8 in 2019.
“Expect to see an increased average number of board meetings going forward,” said Justin P. Klein, Director of the John L. Weinberg Center for Corporate Governance. “Factors behind the increase include the multiple crises that are unfolding globally (including the ongoing pandemic and war in Ukraine), business challenges ranging from talent management to digital transformation, and increasing regulatory and disclosure burdens in areas such as cybersecurity, climate change, and human capital management.”
“Larger companies, especially, may want to consider having their board committees meet (virtually) the week before the in-person board meeting. This has been effective for some of the bigger firms, as it allows them to hold longer committee and board meetings to accommodate an increased workload,” said Justus O’Brien, co-leader of Russell Reynolds Associates’ Board and CEO Advisory Partners practice. “But, without question, there is no one-size-fits-all approach. Expect continued experimentation in the timing, length, and nature (hybrid, virtual) of committee meetings.”
While the average number of formal board meetings is likely to remain elevated, a majority of companies continue to hold fewer than eight board meetings per year.
- The pattern of number of meetings held resembles a barbell:
- On one end: In 2021, the majority of S&P 500 companies held fewer than eight meetings per year.
- On the other end: The next largest share held substantially more meetings—12 or more per year.
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“While some directors have welcomed the return to in-person meetings, boards will likely continue using virtual or hybrid meetings for some committee meetings and to accommodate unanticipated issues,” said Annalisa Barrett, Senior Advisor with the KPMG Board Leadership Center. “They may also consider holding more informal meetings, a model well-suited to bring directors up to speed on specific issues on which no immediate board decisions need to be taken and to allow for directors to get to know key leaders throughout the company.”
Board Committees
While larger companies are most likely to have four or five board committees, smaller companies tend to have three or fewer.
As of June 2022:
- Five committees: 20 percent in the S&P 500 compared to 13 percent in the Russell 3000.
- Four committees: 38 percent in the S&P 500 compared to 32 percent in the Russell 3000.
- Three or fewer committees: 25 percent in the S&P 500 compared to 48 percent in the Russell 3000.
In addition to the traditional audit, compensation, and nominating/governance committees, the most common standing committee is the executive committee.
As of June 2022:
- Executive committee: 30 percent in the S&P 500 versus 17 percent in the Russell 3000.
- Other common committees at larger companies:
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- Finance: 27 percent in the S&P 500 versus 10 percent in the Russell 3000.
- Science & Technology: 16 percent in the S&P 500 versus 9 percent in the Russell 3000.
- Risk: 13 percent in the S&P 500 versus 12 percent in the Russell 3000.
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“Expect boards to increasingly explore a variety of approaches to committee structures, to address a broader array of environmental and social risks and associated stakeholder expectations and regulatory requirements,” said Umesh Chandra Tiwari, Executive Director of ESGAUGE. “Companies may deliberately change their respective approaches over time–for example, establishing a temporary structure to establish a sustainability program, and then a different approach once the program is up and running.”
“If ‘diversity’ is a key theme in US board composition, as boards become more demographically diverse with a greater focus on functional expertise, ‘variety’ is the corresponding theme—as these insights and data reveal—in board leadership, meeting practices, and committee structures,” said Paul Rodel, Partner at Debevoise & Plimpton LLP.
The project is led by The Conference Board in collaboration with data analytics firm ESGAUGE, along with Debevoise & Plimpton, the KPMG Board Leadership Center, Russell Reynolds Associates, and the John L. Weinberg Center for Corporate Governance.
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