Insights for What’s Ahead 

• The ongoing increase in board chair independence is likely driven by CEO succession events, as well as the growing workloads of boards and management, rather than shareholder proposals calling for CEO/board chair separation. The percentage of S&P 500 companies with an independent board chair has grown steadily from 31 percent in 2018 to 37 percent as of early June 2022.^[2] At the same time, shareholder support for such proposals remains in the 30 percent range and, in fact, dropped from 35 percent in 2020 to 28 percent this proxy season. A potential driver for the rise in board chair independence is the increased workload of boards and management, as they grapple with a multitude of crises, fundamental transitions in business models, and growing demands for companies to address ESG issues and the needs of stakeholders. In this environment, a majority of companies favored having two leaders at the helm—with the (either independent or non-independent) chair focusing on the board and the CEO on management. Others have chosen a single point of accountability with one individual holding the CEO and chair roles. A key catalyst for naming an independent chair is CEO succession, which has increased recently and provides an opportunity for the board to reconsider its leadership structure. For example, of the 27 CEO succession announcements through June 21, 2022, only one firm chose to replace a departing CEO/board chair with someone who will assume both positions. By comparison, nine firms (33 percent) chose to have the former CEO remain as a non-independent chair—which is often for a transition period of a few years, after which some boards will name the current CEO as chair, while others will choose to name an independent chair. Thus, the recent uptick in CEO succession announcements could have an ongoing impact in driving the trend toward independent board chairs as some former CEOs, who are now serving as non-independent chairs, may step down in the coming years and be replaced by independent chairs.
• Just as the decline in the reported percentage of board members with business strategy experience at smaller companies is worrisome, so is the decline in the percentage of independent chairs with such experience—and this trend may accelerate.^[3] While the percentage of independent board chairs at S&P 500 companies with strategic experience has increased in recent years, it declined by three percentage points across the broader Russell 3000, from 79 percent in 2018 to 76 percent in 2022. This trend threatens to worsen in the Russell 3000, as the percentage of directors with strategic experience at the Russell 3000—the primary pool from which independent chairs are drawn—declined even more, from approximately 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. Even more importantly, such experience can help directors discern from discussions with management and fellow directors key opportunities and risks that should be addressed by management and at future board meetings. Companies should consider including business strategy experience as a key requirement when choosing independent chairs.
• The number of board meetings is likely to stay at an elevated level, due to factors beyond the ongoing pandemic. The pattern of the number of meetings held by public company boards resembles a barbell: the majority of companies have fewer than eight board meetings a year, while the next largest group of companies has twelve or more, a number which typically suggests such companies are experiencing some form of acute event, whether a business crisis, government investigation, or major M&A deal. While that pattern is likely to persist, we expect to see an elevated average number of board meetings (8.3 in the S&P 500 during 2021, as compared to 7.8 in 2019) going forward. The increase is likely due to multiple crises unfolding globally (including the ongoing pandemic and war in Ukraine); business challenges ranging from talent management to digital transformation; and increasing regulatory burdens in areas such as cybersecurity, climate change, and human capital management. While some directors have welcomed the return to in-person meetings, boards are likely to continue to use virtual and hybrid meetings to accommodate extra or unanticipated demands as they have grown comfortable meeting remotely during the pandemic.
• Board meetings (at which minutes are taken and which count toward director attendance requirements under SEC disclosure regulations) can be usefully supplemented by informal board calls or virtual meetings, which are well-suited to bring the board up to speed on specific issues where no board decisions need to be taken. As our discussion with in-house corporate governance professionals revealed, these sessions can be particularly useful not just to address breaking developments during a crisis, but also for deeper dives or more (informal) time with the CEO to discuss topics that may not merit an item on a board agenda or to augment the board’s understanding of ESG issues. Boards may wish to consider planning a few informal calls in between regularly scheduled board meetings, even if there is no current crisis requiring a gathering.
• To manage the increased workload falling on board committees, companies may want to consider having their board committees meet (virtually) the week before the in-person board meeting. A common approach for companies is to hold in-person board committee meetings on one day, followed that evening by an informal board dinner, and the next day by a full board meeting. Some larger companies are currently experimenting with a different approach, in which some or all committees meet the week before the full board meeting. This has allowed them to hold longer committee and board meetings to accommodate an increased workload. There can be challenges with this approach, especially if committees meet only virtually throughout a year. We expect to see continued experimentation in the timing, length, and nature (hybrid, virtual) of committee meetings going forward.
• Just as we are expecting boards to try different approaches in holding committee and board meetings, we also expect them to explore a variety of approaches to committee structures to accommodate the expanding array of risks and increased workload. While public companies with under $5 billion in annual revenue typically have just three committees (audit, compensation, and nominating/governance), larger companies tend to have four or five standing committees. This demonstrates that larger companies have already moved beyond simply satisfying the stock exchange listing standards and other regulatory requirements. We expect the next few years will bring an era of experimentation, as companies try different approaches to address a broader array of environmental and social risks, associated stakeholder expectations, and regulatory requirements. Indeed, a single company may deliberately change its own approach over time, establishing a temporary structure to establish a sustainability program, and then a different approach once the program is up and running.
• To avoid overburdening the audit committee, it may be helpful to have the audit committee focus on overseeing overall risk management processes and disclosure and have other committees focus on the substantive aspects of ESG issues, such as talent management and diversity, equity & inclusion. For example, while the audit committee could be responsible for the risk assessment process relating to topics such as climate and employee health and safety, other committees, such as the compensation committee, could take the lead in addressing the substantive aspects of human capital management oversight.