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03 October 2023 | Press Release
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Copy LinkA new report reveals a red flag for corporate boards: At US public companies, the share of board directors who are reported as having business strategy experience has dropped significantly over the last five years. It declined from 70 percent in 2018 to 59 percent in 2023 in the S&P 500, and from 68 percent to 55 percent in the Russell 3000.
The decline in such experience among new directors was even more pronounced. In the S&P 500, business strategy experience declined from 66 percent in 2018 to 47 percent in 2023, which matched the decline in the Russell 3000 from 65 percent to 47 percent.
At the same time, companies are reporting higher levels of experience among directors in several ESG areas as compared to five years ago.
“The decline in business strategy experience may reflect a combination of underreporting of such experience and a shift in director recruitment. Regardless of what’s driving the trend, it’s concerning. Having such experience is important in fulfilling the board’s core responsibilities and in enabling directors to collaborate effectively and help keep shareholder activism at bay,” said Merel Spierings, Senior Researcher at The Conference Board.
The Conference Board report was produced in collaboration with data analytics firm ESGAUGE, along with Debevoise & Plimpton; KPMG; Russell Reynolds Associates; and the John L. Weinberg Center for Corporate Governance. Informing the insights are 1) public disclosure data, as recent as August 2023; and 2) key insights from governance leaders at a Chatham House Rule convening, where they discussed current trends in corporate boardrooms.
Additional findings and insights include:
All Directors
As business strategy experience has declined, the share of directors with reported functional experience in ESG areas has increased:
New Directors
The share of new directors with reported functional experience in ESG areas has also increased:
“Investors and other observers are skeptical of directors claiming expertise on too many subjects. To avoid being accused of greenwashing the board, companies should ensure that their directors’ self-disclosed qualifications can be substantiated,” said Richard Fields, Head of the Board Effectiveness Practice at Russell Reynolds Associates. “Companies should validate that directors have significant—and preferably recent—experience disclosed in composition matrices.”
As boards look to diversify professional experience, there’s been a slight decrease in current and former CEOs serving on boards:
Average board size has barely increased in recent years:
“Companies should take a fresh look at their board size to ensure it allows for the needed range of experience, skills, and perspectives,” said Umesh Chandra, Executive Director of ESGAUGE. “As board responsibilities continue to grow over the long term, boards should ensure that the board strikes the right balance between diversity of experience and thought, and efficient decision-making, and consider modestly increasing their size, as appropriate, to meet this balance.”
