Among the many noteworthy findings revealed in PwC's just-released report of results of its new 2016 Annual Corporate Directors Survey of 884 public company directors is how - and the extent to which - boards have responded to investor pressures on board composition. In response to investor pressure over the past year, over 60% of boards added a director with a specific skill set; 46% added a diverse director; 34% added a younger director; and 24% removed an older director. The release notes these additional key findings:
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Directors continue to say someone on their board isn’t measuring up. 35% of directors say someone on their board should be replaced – a sentiment directors have had since 2012. The most common reasons why: they’re not prepared for meetings and they lack the right expertise.
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How beneficial is diversity on the board? It depends on who you ask. 96% of directors agree that diversity is important, but how important it is and how much it helps depends on who you are talking to. 89% of female directors believe that board diversity leads to enhanced company performance, compared to just 24% of male directors. 92% of female directors think board diversity leads to enhanced board effectiveness – only 38% of male directors agree.
- A gender imbalance on boards. In 2015, women made up 20% of S&P 500 boards, up only 5% in a decade. The majority of directors today say anywhere from one-fifth to one-half of the board should be female. But 10% of directors believe the optimal female board representation is 20% or less; 97% of those who believe this are male.
- Are activists good for business? Most directors actually say yes. 80% of directors at least somewhat agree that shareholder activism has compelled them to more effectively evaluate their company’s strategy, execution, and capital allocation. A similar percentage at least somewhat agrees that shareholder activism has resulted in improved company operations and capital allocation.
- The search for new directors doesn’t extend too far behind the boardroom. The most common source for new directors is fellow board member recommendations (87%). However, calls for increased board diversity have prompted some boards to use less traditional sources to find new directors.
- Proxy access: the new normal? Many investors believe proxy access is an essential shareholder right, one that allows them the ability to directly influence board composition. By the end of the 2016 proxy season, about 40% of the S&P 500 had adopted a proxy access bylaw, up from less than 1% that had done so two years ago. Despite this trend, about half of directors are concerned about proxy access.
- Some directors question whether dialogue with investors really matters. Direct engagement between boards and investors has become much more commonplace over the past few years. In fact, 54% of directors said their boards engage directly with their investors. However, not all directors think the engagement is useful – 21% of directors said they didn’t receive any valuable insights from directly engaging with investors.
- Companies respond to investor demands about capital allocation. 48% of directors said their company increased share buybacks due to actual or potential investor demands; 38% said their companies initiated or increased dividends, and 27% said their companies decreased corporate investments.
Stay tuned for more coverage in the weekly Society Alert, and see numerous additional benchmarking surveys and other resources on our Board Practices topical page.