Posted by Matteo Tonello,
The Conference Board, on Tuesday February 26, 2013 at
Matteo Tonello is managing director of corporate leadership at
the Conference Board. This post relates to a study of U.S. public
company board practices led by Dr. Tonello; Frank Hatheway, Chief
Economist at NASDAQ OMX, and
Scott Cutler, Executive Vice President, Co-Head US Listings &
Cash Execution, NYSE Euronext. For details regarding how to obtain
a copy, contact
Directors are best compensated
in the energy industry, but company size can make a huge difference.
Computer services companies are the most generous with full value share
awards, but equity-based compensation is widely used across industries
and irrespective of company size.
Stock options are not as
favored as they used to be, except by the smallest companies Increasing
skepticism on the effectiveness of stock options and stock appreciation
rights as long-term incentives has led to their decline, especially in
the last few years.
Additional cash retainer for
board chairmen is seldom offered by larger companies, which are more
likely to reward lead directors.
A corporate program financing
the matching of personal charitable contributions is the most common
among the director perquisites reported by companies.
While many nonexecutive
directors have C-suite experience, former or current CFOs are less
represented than expected in the board of financial services companies.
Larger financial services
companies often set stricter director independence requirements than
national securities exchanges.
While larger companies
continue to combine CEO and board chairman positions, three-quarters of
financial institutions have appointed an independent lead.
Majority voting is being
increasingly embraced even among smaller companies, but incumbents
failing to obtain the required votes are rarely expected to resign.
According to the director
nomination policy of large companies, diversity matters as much as
business skills. Yet, aside from some level of female representation,
corporate boards remain remarkably uniform.
Most smaller companies save
board search firm fees and use personal connections to recruit new
Proxy access rights and
reimbursement of solicitation expenses remain marginal practices.
While traditional takeover
defenses (including poison pills and board classification) are being
dismantled, large financial companies tend to restrict action by written
consent and prohibit special meetings called by shareholders.
Directors of large company
boards take a corporate aircraft to travel to board meetings, unless it
is a financial institution.
Financial services companies
of all size are ahead in the use of secure online technology for
While an annual say-on-pay
vote appears to be the standard for most companies, almost one-third of
the smallest financial institutions opt for a less frequent consultation
While designing new executive
compensation policies, large financial companies set equity retention
periods and go above and beyond regulatory requirements in the
formulation of contractual clawback clauses.
Large companies are more
likely to enforce anti-gross-up policies.
disclosure also tends to be a feature of larger companies, with industry
and company size the most frequently used criteria in the selection of
the peer-comparison group.
Compensation consultant fees
tend to be lower than the amount for which disclosure is required.
While directors of smaller
companies collaborate directly with management in the business strategy
setting process, larger company boards review strategy more frequently
Frequency of risk reporting to
the board and institution of chief risk office reveal the differing
state of risk governance practices among industry groups.
sustainability oversight depends on company size, with larger companies
elevating it to the board committee level and smaller companies
delegating it to the CEO.
Environmental impact and, for
financial services companies, data security are among the main
sustainability items in board agenda.
Boards of directors at almost
half of the smallest companies (as measured by annual revenue) do not
review political contribution practices, while formal policies for
senior business leader are seldom in place.
Small companies do not have a
board process for the systematic and periodic review of their CEO
Formal policies on board
retention of the departing CEO are uncommon, except in large companies
where the CEO is formally required to also leave the board.
engagement policies begin to emerge, and may include the requirement for
director to actively participate in annual shareholder meetings as well
as the adoption of a protocol detailing when and how shareholder can
reach out to directors and expect a response to a material query.
Large financial companies are
less inclined to use an over-boarding policy as it may impair their
ability to attract director talent.
More than one-third of
companies with less than $100 million in revenue do not periodically
evaluate their director performance.
Approximately two companies
out of 10 require their board members to attend some type of continuing
education programs to remain abreast of regulatory and compliance
As the workload and challenges
facing board committees increase, member rotation policies remain