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2013

S&P 1500Board Profile

Composition & Recruiting

Trends (Part 3)

Featuring Commentary From

Equilar, Inc.

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About Equilar

Equilar is the leading provider of executive compensation and corporate governance data for corporations, nonprofits, consulting firms, institutional investors, and the media. As the trusted data provider to 70% of the Fortune 500, Equilar helps companies accurately benchmark and track executive and board compensation, Say on Pay results, and compensation practices.

Equilar's award-winning Equilar Insight product suite is the gold standard for benchmarking and tracking executive compensation, board compensation, equity grants, and award policies. With an extensive database and more than a decade’s worth of data, the Equilar Insight platform allows clients to accurately measure executive and board pay practices. With Equilar’s Governance Center, companies can better prepare by analyzing historical voting results and modeling pay for performance analyses to ensure successful Say on Pay outcomes.

Equilar Insight’s Governance Center provides a comprehensive set of tools including:

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Equilar’s C-Suite mapping technology within the Equilar Atlas platform identifies pathways to executives and board members at target companies. With over 350,000 executive and board member profiles, Equilar Atlas is the premier executive resource for identifying new business opportunities. Equilar regularly publishes proprietary research reports and articles on the most pertinent issues and trends in executive compensation and corporate governance.

CONTENTS

©2013 Equilar, Inc. The material in this publication may not be reproduced or distributed in whole or in part without the

written consent of Equilar, Inc. This report provides information of general interest in an abridged manner and is not intended

as a substitute for accounting, tax, investment, legal or other professional advice or services. Readers should consult with

the appropriate professional(s) before acting on information contained in this publication. All disclosure examples in this

report are reformatted to fit this document, and certain sections of sample texts may be bolded to add emphasis. If you have

questions or comments regarding this publication, please email [email protected].

Introduction 4

Executive Summary 4

Methodology 4

Board Composition Trends 5

Board Size 5

Gender Representation 5

Age 6

Tenure 7

Director Independence 9

Board Declassification 9

Director Elections Voting Analytics 10

Board Leadership Structure 11

Combined CEO/Chair Role 11

Lead Director Prevalence 12

Committee Chair Rotation 13

Prevalence of Leadership Changes 15

Director Backgrounds 16

Director Executive Experience 16

Director Industry Experience 16

Prevalence of Multiple Board Seats 17

S&P 1500 Board Profile: Composition & Recruiting Trends (Part 3) | 4

Executive SummaryAs the regulatory environment evolves and companies’ business strategies change, so does the expertise required to serve on a board of directors. Building and maintaining a highly effective board is critical to ensure that boards remain vigilant, be effective in guiding strategic discussions, and ultimately steer their companies toward success.

In an analysis of board composition over the past five years, the broader trends indicate that board size has remained consistent. However, much has changed in those five years regarding the composition of boards today. To provide a comprehensive profile of board composition, we researched companies within the S&P 1500 to produce this third report of a three-part series covering board retainers, committee fees, and board composition. We partnered with NYSE Governance Services, Corporate Board Member (CBM) and The Miles Group to compile this detailed overview of board composition and board recruiting trends. To complement the in-depth data review, CBM and The Miles Group provide additional analysis and perspective on this critical governance topic.

First, we examine general demographic data including board size, board member age, tenure, and gender. Our research includes a review of director independence and the prevalence of staggered boards. The second section highlights current trends in board leadership structure, including the prevalence of a combined CEO/Chair role and lead directors. Finally, our research identifies the backgrounds of today’s directors, including an analysis of executive and industry experience of S&P 1500 board members.

� More women directors make up large-cap boards. The largest increase of female directors was in the large-cap, which increased from a median of 15.4% of female directors serving in 2010 to 18.2% in 2012.

� Technology companies have the youngest boards. The smallest reduction in median average age was in the Technology industry,

decreasing from 63.4 in 2008 to 61.2 years of age in 2012. The tech sector had the lowest median age throughout the study periods.

� Prevalence of combined Chair and CEO role has decreased steadily throughout the S&P 1500. The largest decrease in prevalence was in the mid-cap, decreasing from 54.5% in 2008 to 43.4% in 2012. The smallest decrease was in the S&P 500, decreasing from 61.9% in 2008 to 55.1% in 2012.

� Lead directors the least prevalent at small-cap companies. Though there was a 12 percentage point increase for small-cap companies, the small-cap still has the lowest prevalence of lead directors with 40.9%.

� CEO experience still desirable for new board members. The prevalence of directors who have CEO experience is just more than 14.0% and is relatively consistent across the indices, compared to directors with CFO experience at just more than 3.0%.

MethodologyFor these analyses, Equilar analyzed data from S&P 1500 companies with fiscal year ends after May 1, 2012 and filed proxies as of June 1, 2013. Data for 1,046 companies are included in this study.

Introduction


Board SizeIn an analysis of board size across the S&P 1500, the largest boards are found in the S&P 500 companies, which have a median board size of 11 members. Mid-cap companies have a median board size of nine members, and the smallest boards are found at small-cap companies with have a median of eight board members. These numbers have been consistent across the indices since 2008.

Similar analysis by sector in the S&P 1500 indicates little variance in board size over the past five years. Board size was largest in the Utilities, Financial and Consumer sectors which had medians of 11, ten and ten, respectively. The Consumer Goods sector had the only increase in board size, from a median of nine members from 2008 through 2010 to ten in 2012. The Technology sector had the smallest median board size of eight board members. The other half of industry sectors had a standard median board size of nine members, which has remained unchanged since 2008.

Gender Representation

The percentage of female directors increased within small-cap and large-cap companies. The largest increase of female directors was in the large-cap, which increased from a median of 15.4% of female directors serving in 2010 to 18.2% in 2012. Within the mid-cap, female prevalence has remained at 11.1% since 2008. For large-cap companies, the median number of female directors on boards was two, while the median in the small-cap and mid-cap has been one female director.

Board Composition Trends

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The percentage of female directors has increased across industry sectors since 2008, with half the sectors showing increases only from 2010 to 2012. The largest increase was in the Technology sector, which jumped to 11.1% in 2010 from 0.0% in 2008. The next largest increase was in the Consumer Goods sector, increasing from 12.5% in 2008 to 16.7% in 2012. The smallest gains were made in the Healthcare and Industrial Goods industries, with increases of only 0.7% and 1.1%, respectively, however, in 2008 the Healthcare sector had a higher percentage than 4 of the other 7 sectors.

Age

An analysis of age by index shows that large-cap and mid-cap companies have experienced the largest reductions in median average age since 2008. The median average age in the S&P 500 dropped from 65.3 in 2008 to 62.4 in 2012. In the mid-cap, the median average age dropped from 64.7 in 2008 to 62.2 in 2012.

Disclosure & Governance

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Gender by Sector(Percent of Females Serving on the Board)

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While there are some encouraging signs in specific industries, the overall increase of women and minorities on public boards has been slower than anticipated. There are several reasons for this, including a low rate of turnover on existing boards resulting in limited openings, the propensity of boards to want directors with previous experience, which eliminates new diverse candidates looking for their first board experience, the fact that smaller companies aren’t subject to as much shareholder pressure to build a diverse board, and perhaps most important the limited size of the pool of diverse senior officers and CEOs from prominent

NYSE Governance Services Commentary:

companies who are traditionally sought after as first-line, qualified candidates.

The good news is that there is more light being shone on the value of diversity of thought and on having a board that properly reflects the markets it serves. In the future, this issue will be further propelled by existing international mandates to set gender quotas on boards and by certain geographic and political pockets in the U.S. that are setting guidelines for what board composition should resemble in the future.



Disclosure & Governance

An analysis by industry sector reveals a similar trend, a decrease of average median age across all sectors. The largest reductions were in Industrial Goods, where the median age decreased 3.4 years to 62.4 years of age and Basic Materials where it decreased 2.9 years to 62.5 years of age. The smallest reduction in median average age was in Technology, decreasing from 63.4 in 2008 to 61.2 years of age in 2012. The tech sector had the lowest median age throughout the study periods. The industries with the highest average median age were Utilities (63.2) and Financial (63.0).

Tenure

Across the indices, board member tenure has stayed relatively consistent over the past five years. Median average tenure of board members increased from 8.7 years to 8.72 in the large-cap, while in the mid-cap it increased from 8.96 to 9.29 years. In the mid-cap, median average tenure decreased from 9.60 years in 2008 to 9.53 years in 2012. Board members in the mid-cap have the longest average median tenure with 9.53 years, while board members in the large-cap have the shortest average median tenure with 8.72 years.

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Age by Sector

While board diversity numbers will continue to rise, it’s safe to say that the average age for boards will continue to fall. We’re seeing younger and younger people being invited to serve on boards due primarily to their early experience in running companies—particularly those in the tech or digital space. Adding to that is the fact that younger people better understand the new paradigm of cyber risk and opportunity, which is very important today. Interestingly, bringing younger people on boards has created a new dilemma of determining how long a director can responsibly serve on a board or how long he or she can remain independent. For this reason, it is reasonable to expect more focus on term limits, or at least formal independence guidelines, which exist successfully as part of board governance structures in many overseas countries.




An analysis of board tenure by industry reveals that there are no consistent trends across sectors. More than half of the industry groups show a decrease in median average tenure, though some industries show an increase. The largest increases were in Healthcare increasing from 8.43 years in 2008 to 9.15 in 2012, and in Technology increasing from 8.21 years in 2008 to 8.81 in 2012. The industries with the largest decreases were Utilities, decreasing from 9.40 in 2008 years to 8.57 years in 2012 and Industrial Goods decreasing from 9.60 to 9.15 in the same time period. The longest median average tenure was in the Financial industry with 9.87 years, while the shortest tenure was in Basic Materials industry with 8.29 years.

Tenure by Index

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The issue of director longevity is one that can lead to tricky boardroom situations. While there are certainly some directors who are so valuable that people want them around for a long time, problems may arise when those who bring less to the table are reluctant to step down as their effectiveness and relevance wanes.

When directors are underperforming, this is a problem in its own right. But what magnifies the problem is when the board is not regularly evaluating the performance of its individual

The Miles Group Commentary:

directors such that underperforming directors are allowed to stay well past the point at which they are actually being useful. Having these directors around at the very minimum draws down the effectiveness of the board – and, at its worst, these directors can become toxic on the board, causing outright dysfunction.

This is when it is critical for Chairmen or Lead Directors to step in and get into serious diagnostic mode. The best boards are already adopting rigorous annual performance reviews, and moving past the compliance-driven, check-the-box evaluations. Most boards ask their CEOs to conduct annual assessments of their team, and it makes sense for the board to do the same for themselves, not just around governance issues but also around skills and experiences as well as contribution. The best directors want feedback and want to grow and increase their effectiveness.




Director Independence

Given the recent focus on the independence of board members, it is no surprise that the percentage of independent directors on boards has increased since 2008. Large-cap boards have the highest percentage of independent directors, increasing from 84.6% in 2008 to 88.9% in 2012. The small-cap increased from 80.0% in 2008 to 83.3% in 2010 and remained unchanged through 2012, the lowest percentage among the indices.

The upward trend in director independence occurred across all sectors. The Utilities industry has the highest percentage of independent directors with 90.0%, followed by the Basic Materials, Healthcare, and Industrial Goods industries, each with 87.5%. The Services industry had the lowest percentage of independent directors with 81.8%. The largest increases in independent directors were in the Technology industry, from 80% to 85.7% in the five years and Consumer Goods, increasing from 77.8% in 2008 to 83.3% in 2012.

Board Declassification

Once a popular defense against hostile takeovers, staggered boards have been decreasing steadily in prevalence across the S&P 1500. The largest drop in prevalence was in the S&P 500, where the percentage of companies with staggered boards decreased from 38.3% in 2008 to 17.8% of companies in 2012. Mid-cap companies had the highest prevalence of staggered boards in 2012 with 44.8%, though this was lower than the 53.5% in 2008.

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Director Independence by Sector

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Percent of Classified Boards by Index



Across industries there is a similar, steady, downward trend. In 2012, the Industrial Goods and Basic Materials industries had the highest prevalence of staggered boards with 52.2% and 45.2% of companies, respectively. The industries with the lowest prevalence of staggered boards were Utilities (20.6%) and the Financial (29.3%). The Utilities industry had the largest drop in prevalence, from 42.9% in 2008.

Director Elections Voting Analytics

Director election rates across the S&P 1500 have remained consistent over the past three years (2008 data was not available for this analysis). Within each index, the median director election vote percentage increased less than one percentage point since 2012. Large-cap companies had the highest approval percentage with 97.7%, while the small-cap had the lowest 2010 percentage with 96.8%.

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Percent of Classified Boards by Sector

This trend of declassifying boards will continue and these numbers shouldn’t surprise anyone. Activist shareholders and proxy advisory firms have focused on large-cap companies in recent years, and the numbers reflect Fortune 500 companies that have changed their governance structure under this pressure. Mid-cap and smaller companies should prepare for similar attention as investors move down the line to focus on their ranks as well. It’s safe to say that the number of classified boards will continue to drop each year. This isn’t to say that certain companies won’t retain the staggered board tool to thwart unfriendly merger advances, but the reality is that once a board slips up on bottom-line performance or even Say on Pay issues, bringing its company and board into the bright lights of shareholder review, it will be harder and harder for companies to justify the need to continue with a classified board structure.


The move to declassify boards – driven in large part by institutional investors and activist shareholders – has made annual elections for boards much more pervasive across the S&P. Along with this trend comes the fact that effective assessment of directors has become more challenging.

Boards are trying to figure out how to have meaningful discussions about individual performance. When directors must go up for re-election each year, boards need to re-think how they are scheduling and implementing their evaluations in an effective and actionable way.

Companies can preserve the integrity of director assessments by instilling a robust evaluation process separate from the annual re-elections. A


thoughtful and candid process – removed from the elections – that takes turns with groups of directors is a way to maintain high standards and expectations of director contributions.

Additionally, if evaluations are conducted on, and then the findings communicated to, under-performing directors well in advance of elections, these directors can have the opportunity to enhance their performance before it is too late.



Similarly, an analysis of director elections since 2010 across industries shows little variance within each industry since 2010. The median percentage of approval votes for directors has increased less than one percentage point in all sectors. The Utilities industry had the highest percentage with 97.8% in 2012, while the Basic Materials industry had the lowest percentage with 96.6%.

Combined CEO/Chair Role

The prevalence of having a combined Chair and CEO role has decreased steadily over the past five years throughout the S&P 1500. The largest decrease in prevalence was in the mid-cap, decreasing from 54.5% in 2008 to 43.4% in 2012. The smallest decrease was in the S&P 500, decreasing from 61.9% in 2008 to 55.1% in 2012. The S&P 500 still has the highest prevalence of a combined role. The small-cap has the lowest prevalence of a combined role with 37.9% of companies in 2012.

The downward trend of CEO/Chairs continues across all sectors in the S&P 1500 as well. The highest prevalence of a combined role was in Utilities at 60.3% and Basic Materials with 55.6%. The lowest prevalence of combined roles was in Technology at 32.7% and Services at 42.8% of companies. The largest decreases in prevalence were in Consumer Goods decreasing from 66.0% in 2008 to 49.0% in 2012 and Industrial Goods decreasing from 62.5% of companies in 2008 to 50.7% in 2012.

Board Composition Trends / Board Leadership Structure

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Lead Director Prevalence

Lead directors are most prevalent in the S&P 500, which is likely influenced by a higher percentage of large-cap companies with combined CEO/Chair roles. In 2012, 52.7% of companies had a lead director, up from 39.1% in 2008. There has also been a steady increase in prevalence in the mid-cap (44.8%) and small-cap (40.9%) of companies. Though there was a 12 percentage point increase for small-cap companies, the small-cap still has the lowest prevalence of lead directors. Across industries, the prevalence of lead directors

is highest in the Utilities, 54.0%, and Basic Materials, 53.3%. The Technology industry had the lowest prevalence of lead directors with only 37.5% of companies in 2012. The Technology industry also had the smallest increase since 2008, increasing less than eight percentage points over the five-year period. The largest increase in prevalence was in the Industrial Goods industry, increasing from 32.6% in 2008 to 51.5% in 2012.

Board Leadership Structure

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The issue of splitting the CEO and Chairman roles and the prevalence of lead directors are obviously related, and have become more of a hot button than any performance or empirical research suggests should be the case. Not too many years ago, the ISS was indifferent to splitting these roles so long as the board addressed the importance of the board leadership issue by appointing a lead director. What is not reflected in these numbers is that lead directors are getting better and better at understanding their role, and we’re seeing board governance and leadership improve every year. It is tough to argue that splitting the roles isn’t the preferred structure for board leadership, but at the same time, this idea that “one size fits all” and that splitting the roles at every company will produce better bottom-line performance or prevent fraud is just unfounded. The number of companies that split the roles will continue to increase as opportunities naturally present themselves through retirement or changes in leadership. My hope is that investors and proxy advisory firms can focus on more critical issues where empirical evidence has substantiated changes in structure, versus dwelling on the more visible and media-popular CEO/Chairman issue.




Committee Chair Rotation

The prevalence of board committee chair rotation is low, below 5.0% across the indices. It is interesting to note that this prevalence jumped in 2010 for all three indices, most notably in the mid-cap, which increased from 0.8% in 2008 to 4.8% in 2010. Chair rotation prevalence decreased to 3.6% in the mid-cap by 2012, the highest percentage among the indices. Prevalence remained lowest in the small-cap, which increased from 0.7% in 2008 to 1.5% in 2012. At one point in 2010, the S&P 500 had the highest prevalence of committee chair rotation with 4.9% of companies, however, this percentage decreased to 2.9% by 2012.

As the number of lead directors rises across almost all indices, this board position is gaining power as an influencer of board decision-making, especially during times of crisis. As lead directors play an important role in some of the most sensitive areas of governance, including CEO succession planning, boards are increasingly turning their attention to this role and how it can best be tailored to suit the particular needs of the company and governance challenges.

Depending on the strengths and character of the CEO/Chairman, as well as the pull of the rest of the board, a lead director has to negotiate a complicated set of dynamics. The best lead directors will have a strong, supportive relationship with the CEO/Chairman, but also not be afraid to challenge and question when needed. The lead director needs to be able to accurately represent the collective voice of the board to the CEO – and this includes delivering feedback on the performance of the CEO. That the lead director is responsible for the CEO’s annual evaluation makes the role that much more “delicate” as well as critical to the organization.

At the same time, lead directors are expected to chair executive sessions, help the CEO plan the agenda for board meetings, and play an important role in ensuring that the board operates at the right level. In their more ‘board-facing’ role, lead directors can coach their fellow directors on their interface with the company’s management team so that the board is able to interact effectively – both hearing what management is saying and also communicating expectations.


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Lead Director Prevalence by Sector


An analysis by industry sector shows a similar trend. Industrial Goods had the highest prevalence of committee chair rotation with 6.0% of companies. However, all other industries remained below 5.0% in 2012, the lowest prevalence was in the Utilities and Healthcare industries with zero companies implementing committee chair rotation. The same spike was observed in most sectors in 2010, with Industrial Goods hitting a peak of 9.7%. The Financial industry jumped to 5.3% in 2010 from 0.8% in 2008, however, this percentage decreased to 2.9% by 2012.


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Committee Chair Rotation Prevalence by Index

As the numbers show most companies haven’t formally addressed the issue of committee chair rotation or committee member rotation as well. Boards have said for years that CEO succession is one of their biggest challenges so we shouldn’t expect that board or committee succession will be that much easier. There are some important factors that still should go into the committee rotation and committee chair succession thought process. Most incumbent chairs feel it takes them two or in most cases three years to really feel comfortable with the role of the audit or compensation chair. Logic would say that if it takes that timeframe to be good at your job we should not be quick to rotate someone out when they are just hitting


their stride and most valuable to the board. That being said, five years is a good number for someone to serve as a committee chair assuming the following key issues have been addressed: 1) committee chairs should be evaluated on their performance annually. If they aren’t doing a good job they need to be replaced, regardless of any formal term that has been established, and 2) If there is not a qualified candidate that has been prepared to assume the position, do not just rotate a good Chairman off if there is not a qualified board member to take his/her place.

This is where board composition and succession become very important functions of the board and areas where most boards have fallen short on execution. The topic of committee and committee chair rotation is an important issue, not so much in formal structure but in how board leadership handles board composition and succession.


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Committee Chair Rotation Prevalence by Sector


Prevalence of Leadership Changes

The prevalence of changes in the top executive position as well as the Chairman’s role has had an impact on board composition and recruiting practices. An analysis by index reveals that large-cap companies experienced more leadership changes than companies in the mid-cap and small-cap, with 14.1% of large–cap companies making a change in the CEO or Chair position in 2012, down from 15.5% in 2008. Leadership

changes in the mid-cap have remained consistent over the past five years, at slightly more than 10.0% of companies. For small-cap companies, the prevalence of leadership changes decreased from 12.1% in 2008 to 7.5% in 2010, however, by 2012 prevalence increased to 11.1%.

An analysis of leadership changes by industry indicates a clear trend of decreasing prevalence from 2008 to 2010. However, by 2012 all industry groups had increased above 2010 levels, in some cases actually surpassing the percentages of 2008. By 2012, the highest prevalence of leadership changes was in the Utilities industry (17.5% of companies) and the Consumer Goods industries (16.3% of companies). The lowest prevalence of leadership changes were in Industrial Goods (9.8%) and Financial industries (6.9%).


Even though committee chairs do not rotate that often, rotational leadership can be of value. Rotations are helpful from a recruiting perspective, as directors seek out opportunities to take leadership positions on the board. Newer members can feel as if committee chairmanships are a real possibility for them versus walking into a previously “ordained” structure. Rotations also help build out the board succession pipeline leading to lead director or Chairman, as it gives more directors greater exposure to the multiple functions of the board.

When a board practices committee chair rotations, it is particularly important that the board makes it a practice to annually get alignment around the key objectives of each committee – in conjunction with the chair. There needs to be an overarching framework around which committee chairs can “hang their work” and measures progress against. This regular alignment allows the board to capture governance history and best practices that may be otherwise lost in a rotational situation.

During rotational leadership, a best practice for getting all the board leaders together is to have the Nominating and Governance committee comprised of all the committee chairs. As this committee is tasked with some of the most critical duties of the board – such as board recruiting and composition – having a forum for the chairs to come together and explore these key issues adds value to overall board performance.


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%2012

2010

2008

S&P 500

S&P Mid

Cap 40

0

S&P Sm

allCap

600

Prevalence of Leadership Chnages by Index


Director Executive Experience

In recruiting new board members in recent years, current or former CEOs and CFOs were at the top of boards’ wish lists. An analysis of CEO and CFO experience within the S&P 1500 indicates the prevalence of directors who have CEO experience is just more than 14% and is relatively consistent across the indices. Similarly, the percentage of directors with CFO experience was consistent across indices at just more than 3.0%, with the highest prevalence in the mid-cap at 3.8%.

A similar analysis by industry reveals slightly more variance between industry sectors. The Technology sector had the highest prevalence of directors with CEO experience at 15.8%, while the Financial industry had the lowest prevalence at 11.2%. Across all industries, the prevalence of directors with CFO experience was less than 5.0%. The Industrial Goods industry had the highest percentage of directors with CFO experience with 4.9%, while the Financial industry had the lowest percentage with 2.4%.

Board Leadership Structure / Director Backgrounds

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0% CFOExperience

CEOExperience

S&P 500

S&P Mid

Cap 40

0

S&P Sm

allCap

600

Background of Directors by IndexWhenever you ask a board what type of board member it is looking to recruit, it is common to hear that a sitting CEO or at least a recently retired CEO is most desired to get that top-level operating experience. If the board needs help with the audit committee and is seeking a financial expert, companies will often search the CFO ranks to find such a candidate. The fact of the matter is we are seeing fewer CEOs taking multiple board seats and subsequently, the demand far exceeds the supply. This is primarily because CEOs are concerned about how much time is required to serve on today’s boards. Also, in many cases, companies have restricted their CEOs to only serve on one outside board, thus keeping their attention on their own company.


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0% CFOExperience

CEOExperience

Utiliti

es

Technolo

gy

Servic

es

Industr

ial G

oods

Health

care

Finan

cial

Consum

er G

oods

Basic

Mat

erial

s

Background of Directors by Sector

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%2012

2010

2008

Utiliti

es

Technolo

gy

Servic

es

Industr

ial G

oods

Health

care

Finan

cial

Consum

er G

oods

Basic

Mat

erial

s

Prevalence of Leadership Changes by Sector


Director Industry Experience

The highest prevalence of directors with executive experience was in the Services sector at 26.7% and the Financial sector at 25.7%. Directors with experience in the Healthcare and Utilities industries had the lowest prevalence with 9.9% and 7.4%, respectively.

Prevalence of Multiple Board Seats

An analysis across the indices shows that there is little year-to-year variance of the prevalence of directors with multiple board seats. Within the S&P 500, the percentage of directors with multiple board seats has remained at just more than 26.0% over the last five years, highest among the indices. Small-cap companies had the lowest percentage

of directors with multiple board seats, increasing from 9.6% in 2008 to 10.4% in 2012.

A similar trend was found across sectors, with very little variance in each sector. The largest increase in prevalence was in the Technology sector with slightly less than a three-percentage point change, from 15.1% in 2008 to 18.0% in 2012. The only decreases in prevalence were in the Healthcare and Industrial Goods industries, both of which had less than a 1.0% change from 2008 to 2012. The Industrial Goods industry had the highest prevalence of directors with multiple board seats with 22.0%, while the lowest prevalence was in the Financial industry with 13.0%.

Director Backgrounds

This paradigm forces nominating committees to be more creative in recruiting board members, which, in my opinion, is not necessarily a bad thing. Boards should undergo a skill-set matrix analysis to better understand their strengths and weaknesses. Often a blend of CEOs together with a blend of other senior officers, retired accountants, or general counsels can create a good skill balance on a company board.


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0% IndustryExperience

Utiliti

es

Technolo

gy

Servic

es

Industr

ial G

oods

Health

care

Finan

cial

Consum

er G

oods

Basic

Mat

erial

s

Background of Directors by Sector

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%2012

2010

2010

S&P 500

S&P Mid

Cap 40

0

S&P Sm

allCap

600

Prevalence of Multiple Board Seats by Index


Director Backgrounds

While companies don’t want to have directors who are “over-boarded,” there is much value in directors’ bringing in expertise and insights from complementary industries.

Ideally, you want people in the board seat who have experienced some of the same challenges the company might face. Projecting forward, what are the types of skills and experiences needed on the board to help the CEO navigate from a strategic perspective? Directors garner these skills from their previous experience as an executive, their current experience as a sitting executive, or from their other board memberships. Just like senior executives, boards want directors who have an outside-in perspective, and often times they receive this by serving on other boards.

What you need as much as expertise, however, is a commitment from a director to devote the hours and hours needed for best-practice governance. Board service today is more demanding than ever, and directors have to be able to stand up to the increased scrutiny of their decisions among all stakeholders.


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%2012

2010

2008

Utiliti

es

Technolo

gy

Servic

es

Industr

ial G

oods

Health

care

Finan

cial

Consum

er G

oods

Basic

Mat

erial

s

Prevalence of Multiple Board Seats by Sector


EQUILAR CONTACTS

For more information, contact Aaron Boyd, Director of Governance Research, at [email protected]. The contributing author of this report is Belen E. Gomez, Senior Governance Editor, [email protected].

Report Partners:

About NYSE Governance Services

NYSE Governance Services is an integrated suite of resources for public and privately held companies worldwide seeking to create a leadership advantage through corporate governance, risk, ethics and compliance practices. NYSE Governance Services leverages the expertise of Corpedia®, a leader in risk assessment and e-learning for ethics and compliance, and NYSE Governance Services®, a trusted source on governance matters for company directors and C-level executives – both NYSE Euronext companies. NYSE Governance Services offers a range of training programs, advisory services, benchmarking analysis and scorecards, exclusive access to peer-to-peer events and thought leadership on key governance topics for company directors and C-level executives. For more information, visit https://usequities.nyx.com/listings/governance.

NYSE Governance Services Contact

TK KerstetterChairman, NYSE Governance [email protected]

TK Kerstetter is Chairman of NYSE Governance Services, an NYSE Euronext Company focused on corporate board thought leadership issues and governance trends. Headquartered in Nashville, Tennessee, NYSE Governance Services publishes the industry leading NYSE Governance Services magazine, in addition to managing a director and C-suite officer database, board research services, and an extensive events and conference education operation. Currently, Mr. Kerstetter is the producer and co-host of “This Week in the Boardroom,” a weekly on-demand web show filmed at the New York Stock Exchange and also authors “The Board Blog” for corporate directors. In 2011 Mr. Kerstetter spear-headed the launch of the Board Education Program, in conjunction with NYSE Euronext, which provides corporate secretaries, general counsel, and board leadership with critical updates and high-caliber content offered through a variety of live and online events.

A graduate of Indiana University of Pennsylvania and Harvard Business School Advanced Management Program, he previously served as president and director of the $2 billion publically-held Wilmington Savings Fund Society spanning a 20 year banking career.

Prior to joining NYSE Governance Services, Mr. Kerstetter founded the Bank Directors Training Center in Wilmington, Delaware. In 1994, he authored a guidebook titled, Ten Commandments for Bank Directors: the "Official" Guide Regulators Won't Publish, which was released as a monograph by the National Association of Corporate Directors.

Mr. Kerstetter has appeared on both CNBC and Fox Business News addressing NYSE Governance Services annual “What Directors Think” research and various board trends. His director and board governance articles have been highlighted in numerous publications, and he has conducted over two hundred speeches and presentations for


EQUILAR CONTACTS

national and state associations, public and private companies, and governance-related or banking organizations.

About The Miles Group

The Miles Group (TMG) develops talent strategies for organizations, teams, and individuals – focusing on high-performance, world-class leadership. TMG advises top global corporations through CEO succession, executive transitions, board succession, and Chairman/Lead Director transitions to fully support the strength of the organization. Through its executive assessments, team assessments, and TMG Learning, TMG creates development programs that build powerful talent pipelines and train the leaders of the future. The firm’s coaching and advisory services enable leaders to raise the bar on their own performance, as well as create an environment for success throughout the organization.

The Miles Group Contact

Stephen Miles Founder & CEO [email protected]

Stephen Miles is the founder and chief executive officer of The Miles Group. Previously, he was a vice Chairman at Heidrick & Struggles and ran Leadership Advisory Services. With more than 15 years of experience in assessment, executive coaching, top-level succession planning, organizational effectiveness and strategy consulting, Stephen specializes in CEO succession and has partnered with numerous boards of global Fortune 500 companies to ensure that a successful leadership selection and transition occurs. He has also led many Chairman successions and board effectiveness reviews, partnering with boards of directors to help them with their overall effectiveness, committee effectiveness, and individual director effectiveness.

Stephen is a recognized expert on the role of the chief operating officer, and has consulted numerous companies on the establishment and the effectiveness of the position and supporting the transition from COO to effective CEO. He is a coach to many CEOs and COOs around the world, and his clients cut across all industry sectors. Stephen and his CEO advisory services were profiled in the Bloomberg Businessweek article “The Rising Star of CEO Consulting.” Prior to The Miles Group and Heidrick & Struggles, he worked with Andersen Consulting.

Stephen is author and co-editor of the best-selling business book Leaders Talk Leadership. He also co-authored Riding Shotgun: The Role of the Chief Operating Officer, as well as the cover article in the May 2006 issue of Harvard Business Review on the same topic. Stephen also co-authored the feature article in the April 2007 issue of Harvard Business Review titled: “The Leadership Team—Complementary Strengths or Conflicting Agendas?” His third book, Your Career Game: How Game Theory Can Help You Achieve Your Professional Goals, was released in April 2010 (Stanford University Press). He is currently completing a new book on CEO succession, to be published by Stanford. Stephen is the author of the Stanford Graduate School of Business case study entitled “Multimillionaire Matchmaker: An Inside Look at CEO Succession Planning.”

Stephen has been featured in Forbes, Bloomberg Businessweek, Directorship, Boardroom Intelligence, Strategy + Business, The Wall Street Journal, Consulting Magazine, MIT Sloan, Ivey Business Journal, and CEO Magazine. He is a regular contributor to Bloomberg Businessweek’s “The Management Blog” and speaks frequently on the topics of CEO succession, coaching C-level executives, talent management, and complementary leadership at the top.

He is an advisory board member at The Pythian Group, as well as a member of Big Think’s Delphi Fellows program. He holds a bachelor’s degree in psychology and a master’s of business administration, both from Queen’s University in Kingston, Canada. He also holds a master’s degree in psychology from the University of Victoria. Stephen resides in Atlanta, Georgia. He has lived in Kenya, South Africa, Iraq, Argentina, and Canada.

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