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By Michael Greene
Dec. 15 — Strategy will be the top area of boardroom focus in the upcoming year, according to a Dec. 15 board practices report by Deloitte LLP's Center for Corporate Governance and the Society of Corporate Secretaries and Governance Professionals.
The ninth annual report, which stems from a survey of 250 public companies, also noted some mixed results regarding board tenure and turnover, finding that although age limits are increasing, they remain the main reason for changes in board composition.
According to the report, “50 percent of all companies surveyed said their most recent director joined the board within the past year and another 20 percent said one year ago.”
The report further found that the most sought-after board skills and backgrounds remained constant from the 2012 report: related industry experience, C-suite experience, and international business exposure. The report noted that about one third of small-cap companies picked mergers and acquisitions experience.
A majority of respondents selected strategy (85 percent) as the top board focus area for the upcoming year followed by risk oversight (44 percent) and board selection, recruitment and composition (36 percent).
CEO succession planning (24 percent), and cybersecurity (16 percent) rounded out the top five.
Strategy and risk oversight “go hand-in-hand as boards remain vigilant and focused on monitoring strategy and related metrics and alternatives, while also overseeing and mitigating risks to the strategy and the business itself (e.g., operational and reputational risks),” the report states.
Just more than half of the respondents (52 percent) indicated that strategic objectives are discussed at every board meeting.
Additionally, “68 percent say the full board discusses significant risks to the company more frequently than once a year.”
A recent National Association of Corporate Directors survey indicates that many directors want changes in the allocation of risk oversight responsibility.
Relating to board turnover, the report found that despite more boards increasing the age limit for their directors, “retirement in response to age limits continues to be most prevalent mechanism for board refreshment.”
Respondents chose ages 72-75 (or older) as the most frequent age limit policy of their company. Additionally, 30 percent of respondents said their required retirement ages was 75 or older, which is up from 18 percent in 2012.
However, when asked what triggered any recent or pending change in their boards' composition, respondents chose the retirement of an existing director (53 percent) as the most frequent answer—followed by resignation of an existing director (18 percent) and the need for specialized knowledge (19 percent).
And although the number of companies instituting term limits has risen, it does not appear to be a major factor in the refreshment policies of most boards. Only 6 percent of the respondents said their companies had term limits—up from 3 percent in 2012.
Even though the need for specialized knowledge is not driving changes in board composition, industry experience was cited as the most desired skill and experience needed for a board's success in the next two years.
According to the report, the top three desired boards skills and experiences are industry (similar to respective company) (48 percent), C-level (32 percent) and international business exposure (25 percent).
Some academics and practitioners have said that an increased focus on searching for directors with industry expertise can lead to more diversity on boards.
Moreover, Charles Elson and Ann C. Mulé of the University of Delaware's John L. Weinberg Center for Corporate Governance have warned about the dangers of searching for directors who have C-suite experience whether they have knowledge of the company's business or industry.
In line with other recent studies, the report also found that the number of women on boards is slightly increasing. Specifically, the report found that “18 percent of respondents increased the number of women on their board in the past year.” Additionally, “about one-quarter of all companies said women make up 26 percent to 50 percent of the board, up from 18 percent in 2012.”
“Diversity in board composition continues to gain attention, not just from investors but from organizations such as Catalyst, the 30% Coalition, 2020 Women on Boards, and Alliance for Board Diversity, whose missions are to increase women and minority representation on board,” the report states.
The report also noted that “[w]hile the needle has moved slightly on gender and ethnicity, it appears to be at a standstill when it comes to adding younger members.” More than half (58 percent) of the companies responded that their youngest director is older than 50 and almost all reported that their youngest director was more than 40.
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The report is available for download at http://www2.deloitte.com/us/en/pages/regulatory/board-practices-report-perspectives-boardroom-governance.html.
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