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Expectations on board members too high

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Sixty percent of directors say that there is a gap between the expectations placed on boards and the reality of the board’s ability to oversee a company, according to the 2016 Global Board of Directors Survey.
The report was released yesterday by Professor Boris Groysberg and Yo-Jud Cheng of Harvard Business School, Spencer Stuart, the WomenCorporateDirectors (WCD) Foundation, and researcher Deborah Bell.

“Directors themselves may be more qualified than ever, but they are facing higher expectations than ever,” says Julie Hembrock Daum, head of Spencer Stuart’s North American Board Practice. “These expectations are coming from multiple stakeholders – investors, consumers, regulatory bodies, the media – in a climate of unprecedented demands for transparency and accountability. We see directors seeking to stay ahead of these demands and devoting more time to board prep and information gathering.”

And board leaders are the ones who are the key drivers in creating the right composition: “Our research on corporate governance suggests that more diverse and inclusive boards are impossible to build without board leadership playing a major role in attracting and appointing diverse board members,” says Professor Groysberg.

The survey – which polled directors on issues ranging from the economy to quotas to director skills – captured responses from more than 4 000 male and female directors in 60 countries around the world, and is one of the largest board surveys ever. Additional data from the survey was released earlier this year, including findings around the issues of cybersecurity, diversity, and the need for attracting and retaining top talent.

Key Findings around Board Skills, Processes, and Priorities included:

• Disconnect between expectations and reality around board’s true oversight ability. Of the 60% of directors who see a gap between the expectations placed on boards and the reality of the board’s ability to oversee a company, 64% believe expectations moderately exceeded reality. Strikingly, 25% believed expectations far exceeded reality.

• Boards are seeking out apt skills for new directors. For the most part, boards appear to be adequately matching the skills that they consider most important for board service to the skills that they aimed to acquire in their most recent board appointment. Industry knowledge and financial/audit skills were 2 of the top 3 skills cited as “most important for board service today” and were also sought after in recent board candidates.

• But strategy experience may be getting overlooked. In one notable exception to the finding above, 67% of respondents cited strategy as one of the most important areas of expertise for directors today – the highest of all skills named – but only 33% of respondents said that strategy expertise was among the skills the board most wanted to acquire with its most recent appointment.

• Other skills in demand on boards. Behind the “top 3” of strategy and financial/audit expertise and specific industry knowledge, directors also cited risk management and international/global expertise as most important to board service today. Areas named least frequently as important were sales and marketing, and compensation and succession planning expertise.

• Measuring performance – with consequences. As greater regulatory requirements have put board performance under a microscope, many boards have instituted evaluations as part of their structure. Indeed, the survey revealed that more than two-thirds of boards conduct performance evaluations of directors. One-third of respondents have served on a board where evaluations were used to remove a director, showing that the evaluations do have teeth.

• Networking is a priority for both men and women directors. Showing the value directors see in networking – which increases opportunities for both gaining knowledge and recruiting new board candidates – directors are spending an average of 9.4 hours/month on networking with peers. Women are investing a bit more time in this activity (10.1 hours vs. 9.1 hours average) and in planning/strategizing about their career than men (4 hours/month vs. 2.9 hours/month).

• Diversity on boards should be driven by board leadership. Both male and female directors feel that board leaders’ serving as champions of board diversity is the #1 way to build diverse corporate boards. They rated this board leadership support as a far more important factor in building diversity than setting diversity targets or requirements or shareholders’ demanding diversity.

• How much time is spent in full boardroom meetings? Directors report an average of 6.6 full meetings per year, with a high attendance rate (95%). Boards for companies based in Australia & New Zealand meet most frequently (9.3 meetings/year), compared to just 4.9 meetings/year for firms based in Africa. North American directors reported an average of 5.8 meetings/year, and those in Western Europe reported 7.5 meetings/year.

• Directors more satisfied with CEO compensation levels than with their own. Most directors think that current compensation levels are set appropriately, but are more likely to think director compensation is too low. While 80% of respondents believed that compensation level of the CEO at their company was “about right” and only 12% believed it was too low, only 65% of directors felt that the compensation of directors on their board was “about right” and 32% believed it was too low.