Prevalence of Independent Chairs Continues to Climb

Rockville, MD (March 16, 2015) – Institutional Shareholder Services Inc. (ISS), a leading provider of corporate governance solutions to the global financial community, today released the 2015 edition of its annual Board Practices study examining trends across S&P 1500 boards and directorships.

ISS annually undertakes a detailed review and analysis of the structure and composition of boards of directors among S&P1500 companies in order to identify the latest practices and emerging trends. This year’s study tracked 1,428 companies and 13,453 directorships, reflecting those companyies‘ most recent disclosures for annual shareholder meetings for the one-year period ending June 30, 2014.

Key findings from this year’s study include:

  • The number of companies with independent board leadership is steadily increasing, and has been for several years. The combined chair/CEO position is on the decline, and the number of independent board chairs is increasing. While the majority of independent board leaders are still lead directors, and not chairs, the proportion of companies with lead directors has decreased at both MidCap and SmallCap companies in response to the increasing number of independent chairs.
  • Shareholder-friendly trends are continuing in board elections, as more companies allow for annual elections and adopt majority vote standards. The majority of companies in the S&P 1500 hold annual elections for directors. While this has been the norm for a number of years at larger companies, for the first time since our analysis began in 1996, more than 50 percent of SmallCap companies have declassified their boards and turned to annual elections for directors. At the same time, over half of all companies studied now have a majority vote standard for director elections for the first time. In 2013, just under 50 percent of the S&P 1500 had a majority vote standard; in 2014, that number shot up by over five percentage points to 55 percent. Nearly 90 percent of S&P 500 companies have a majority vote standard.
  • The growing attention given to increasing diversity in recent years is becoming evident in boardroom makeup, especially the substantial attention given to increasing gender diversity. The number of female directorships increased by two percentage points, to 16 percent of all board seats in the S&P 1500. Also, 81 percent of all companies studied have at least one female director, which is a new high.
  • Board refreshment in the S&P 1500 increased in 2014, and director turnover is greater, as evidenced by both a decline in average director tenure for the first time in seven years and a decline in average director age for the first time in five years.
  • The profile of an average new director reflects trends seen in other areas. New directors, or directors who have sat on a board for under two years, tend to be younger—which may be unsurprising, but is nonetheless an indication that nominating committees are looking outside the realm of established director circles for candidates to fill the ranks. New directors are also more likely to serve on fewer, if any, other boards, and to be currently employed as executives (as opposed to longer-tenured directors, who are most likely to be “retired”). These two facts further support the conclusion that nominating committees are looking to younger executives at other firms with limited prior board experience to refresh boardroom ranks. New directors are also far more likely to be female or an ethnic minority than longer-tenured directors.

“Though we do not see a wholesale reshaping of corporate boards, the study findings clearly point to a sharper focus on board refreshment more than at any time over the past decade,” said Dr. Martha Carter, ISS Global Head of Research. “One notable result of this trend has been accelerated movement toward greater board gender diversity, with 81 percent of study companies now having at least one female director, compared with just 69 percent in 2006.”

ISS will host a webcast March 17 at 1pm ET to discuss key findings from the study. To register, please click here.

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