Boardrooms yesterday, today and tomorrow.A look at the corporate boardroom today versus that of 25 years ago highlights dramatic changes - and forecasts future stages in board evolution. Charting trends and policies in America's boardrooms since 1973, the Korn/Ferry Korn/Ferry International, headquartered in Los Angeles and founded in 1969 by Lester Korn and Richard Ferry, is the world's largest executive search firm with 70 offices in North America, Europe, Asia/Pacific, Latin America, the Middle East and South Africa. International study is one of the nation's longest running analyses of corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. . More than 14,000 CEOs, chairmen, and directors have participated, including 1,020 this year. Results from the regular questionnaire paint a dramatic portrait of the past 25 years, with comparisons from 25 and 10 years ago as well as year-to year. Looking back over 25 years, CEOs and directors cite the changes in board composition as the single most compelling fattier in altering corporate governance. Beyond illustrating of boardroom evolution, the study asks CEOs and directors to grade their performance on management succession and executive compensation and to look over the horizon at what changes they expect in the next five years. The result is an intriguing in·trigue n. 1. a. A secret or underhand scheme; a plot. b. The practice of or involvement in such schemes. 2. A clandestine love affair. v. comparison of boards past and present, as well as an indication of what changes loom loom, frame or machine used for weaving; there is evidence that the loom has been in use since 4400 B.C. Modern looms are of two types, those with a shuttle (the part that carries the weft through the shed) and those without; the latter draw the weft from a ahead.
How are outside board members compensated?
Cash Compensation 1973 1988 1998
Annual fee only 25.1% 8.6% 14.0%
Per-meeting fee only 14.4 2.2 4.0
Both 57.2 84.8 80.0
No cash compensation - - 2.0
No response 3.3 4.4 -
Total 100.0% 100.0% 100.0%
Does the board have one or more of the following individuals serving
as a director on the board?
1973 1988 1998
Commercial banker 55.4% 20.8% 20.0%
Academician 34.9 54.5 49.0
Woman 10.7 52.8 72.0
Former government official 14.4 25.7 53.0
Ethnic minority 8.9 31.3 55.0
Has the company provided any form of stock program as a means of
compensating outside directors?
1973 1988 1998
Yes 4.0% 8.8% 78.0%
No 85.0 91.2 22.0
No response 11.0 - -
Total 100.0% 100.0% 100.0%
Do the directors receive full reimbursement for travel and related
expenses to board meetings?
1973 1988 1998
Yes 89.3% 91.6% 85.1%
No 5.8 8.4 14.9
No response 4.9 - -
Total 100.0% 100.0% 100.0%
Does the company have liability insurance for directors?
1973 1988 1998
Yes 73.4% 85.2% 73.7%
No 24.8 14.8 26.3
No response 1.8 - -
Total 100.0% 100.0% 100.0%
Does he board have the following committees?
1973 1988 1998
Executive 81.3% 76.2% 63.0%
Compensation 76.1 90.6 99.0
Audit 71.9 97.6 100.0
Finance 35.2 37.3 36.0
Nominating 2.4 59.5 74.0
Are outside board members paid extra for serving on a board
committee
1973 1988 1998
Yes 66.0% 84.0% 91.0%
No 30.0 16.0 9.0
No response 4.0 - -
Total 100.0% 100.0% 100.0%
Insiders vs. Independents Insiders, including corporate officers, consultants, and others beholden be·hold·en adj. Owing something, such as gratitude, to another; indebted. [Middle English biholden, past participle of biholden, to observe; see behold. to the company who did little more than rubberstamp rubber stamp n. 1. A piece of rubber affixed to a handle and bearing raised characters used to make ink impressions, as of names or dates. 2. also rub·ber·stamp a. the CEO's actions, dominated boards in 1973. The number of inside directors has dropped steadily ever since, particularly in the last decade. In 1973, 57 percent of U.S. boards were composed of between 10 and 15 members, and almost all reported between four and six directors who were true "insiders" - executives who worked for the corporation. In addition, another two or three directors would be classified as insiders today because they were consultants or provided services to the company, such as investment bankers Investment Banker A person representing a financial institution that is in the business of raising capital for corporations and municipalities. Notes: An investment banker may not accept deposits or make commercial loans. , commercial bankers, and attorneys. The number of inside directors has dropped steadily, particularly in the last decade, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the Korn/Ferry reports. Ten years ago, the average board comprised 14 members four of whom were insiders. Today the average U.S. board is dominated by outside directors who hold nine of 11 seats. Only two are inside directors. Furthermore, outside directors today - in almost all cases - are barred from doing consulting, legal, or other business with the company. The trend away from inside and affiliated outside directors has accelerated competition for outside directors who are most sought after - CEOs and retired CEOs. Further heightening height·en v. height·ened, height·en·ing, height·ens v.tr. 1. To raise or increase the quantity or degree of; intensify. 2. To make high or higher; raise. v.intr. the competition is the fact that more companies are limiting the number of boards on which their CEOs can sit, and many people who are approached are declining offers because of the time commitment involved. Independent Committees The second major corporate governance development of the past quarter century noted by CEOs and directors is the emergence of independent audit, compensation, and nominating committees A nominating committee is a group formed usually from inside the membership of an organization for the purpose of nominating candidates for office within the organization. It works similarly to an electoral college, the main difference being that the available candidates, either . Ten years ago, only the audit committee was made up entirely of outside directors. Only 2 percent of boards had a nominating committee in 1973 and, just five years ago, it still included one insider. Today, 74 percent of all boards have a nominating committee entirely composed of independent outside directors. Dramatic Gains in Diversity Since its very first report, Korn/Ferry has looked at diversity on boards. The typical U.S. board in 1973 was all white and all male. Now, in 1998, 72 percent of all boards report at least one woman director - a stunning gain from only 11 percent 25 years ago and even up significantly from 53 percent in 1988. Ethnic minority members have had similarly dramatic leaps. Only 9 percent of boards in 1973 reported an ethnic minority member. This number moved up to 31 percent in 1988 and 55 percent in 1998. Compensation Trends Another sea change is the trend from paying directors totally in cash to payment in company stock - a move designed to tie directors more closely to company performance and shareholder interests. In 1973, only 4 percent of companies compensated their directors with some form of company stock. Today that number has grown nearly 20 times - with 78 percent of companies paying all or partially with stock. It's it's 1. Contraction of it is. 2. Contraction of it has. See Usage Note at its. it's it is or it has it's be ~have also interesting to look at the trends in director compensation. Total annual compensation in 1973 was under $10,000, climbed to $25,387 in 1988 and has now reached $37,924. Moreover, almost all boards today pay additionally for serving on a committee; in 1973 only 66 percent of companies paid for committee service. CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Evaluation, Executive Sessions Managing Board Operations Perhaps the one statistic statistic, n a value or number that describes a series of quantitative observations or measures; a value calculated from a sample. statistic a numerical value calculated from a number of observations in order to summarize them. that highlights how boards have gained new powers is the fact that 72 percent now have a formal process for CEO evaluation. At 89 percent of these companies, performance is measured against a set of targets to which the board and CEO agree at the beginning of the year. And in 92 percent of companies, the evaluation process includes a formal feedback session with the CEO - written feedback in 30 percent of the cases. A second noteworthy change that has contributed to more accountability The traceability of actions performed on a system to a specific system entity (user, process, device). For example, the use of unique user identification and authentication supports accountability; the use of shared user IDs and passwords destroys accountability. and influence for outside directors was not even on the radar screen in 1973. Today, 58 percent of boards have a formal committee that reviews corporate governance processes and board operations. This number is even higher - 71 percent - at the largest companies (with annual revenues of more than $20 billion), which typically set board trends. What Will the Future Hold? Directors and CEOs agree that outside directors are taking a greater share of responsibility for major decisions. Areas in which they are most involved today include long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. strategy, management succession, CEO evaluation and compensation, crisis management, and issues that focus on shareholder interests. But what can we expect in the future? CEOs and directors point to eight trends they feel confident will become generally accepted practices in the next five years: * CEO performance reviews will be well established at most companies. * Board performance reviews will grow but at a slower pace. * Retiring CEOs will be required to leave the board. * CEOs and directors will be required to own a certain amount of stock. * Meetings of independent directors without the CEO will be commonplace. * Committee chairs and members will be appointed by the board, not the CEO. * Numbers of truly independent directors will grow even further, replacing inside and affiliated directors. * A written corporate governance policy will be in effect and a corporate governance committee will have oversight
Oversight may refer to:
What the Future Won't won't Contraction of will not. won't will not won't will Hold Four other governance Governance makes decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. changes that have been widely recommended by critics, media, and pundits will not occur - at least not in the next five years, according to what CEOs and directors tell Korn/Ferry. They predict: * No ceiling on CEO compensation. * No term Limits for directors. * No separation of chairman and CEO functions. * No board management succession committee. Much Left to be Done There's no question that boards - their independence and their governance practices - have come under intense scrutiny from institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. , the media, and the general public over the past quarter century. But the Korn/Ferry studies clearly illustrate that boards themselves have made deliberate and self-directed self-di·rect·ed adj. Directed or guided by oneself, especially as an independent agent: the self-directed study of a language. self decisions to bring about most of the changes we have witnessed these past 25 years. While the march toward better corporate governance has been remarkably fast-paced Adj. 1. fast-paced - of communication that proceeds rapidly; "a fast-paced talker"; "fast-paced fiction" fast - acting or moving or capable of acting or moving quickly; "fast film"; "on the fast track in school"; "set a fast pace"; "a fast car" , there are still too many companies, CEOs, and directors who pay little more than lip service lip service n. Verbal expression of agreement or allegiance, unsupported by real conviction or action; hypocritical respect: to good corporate governance. We hope they soon will recognize the real, tangible benefits in an equal partnership between boards and CEOs. For shareholders, more accountable boards mean solid checks and balances in governance and a greater focus on their interests. The CEO can rely on an objective reservoir reservoir (rĕz`əvôr, -vwär), storage tank or wholly or partly artificial lake for storing water. Building an embankment or dam to preserve a supply of water for irrigation is an ancient practice; India and Egypt have many old and of judgment, experience, and intellectual capital, as well as a more effective sounding board and decision making partner. Moreover, the CEO and the company gain significant credibility with critics, media, and institutional shareholders. Finally, stronger boards reinforce confidence in business, demonstrate that companies voluntarily can - and will - establish good governance The terms governance and good governance are increasingly being used in development literature. Governance describes the process of decision-making and the process by which decisions are implemented (or not implemented). practices, and provide an excellent model for companies in other countries around the world. While there is much left to be done to achieve a complete metamorphosis complete metamorphosis n. The complete form of metamorphosis in which an insect passes through four separate stages of growth, as embryo, larva, pupa, and imago. Also called holometabolism. in the governance of Corporate America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. , these study findings confirm that the evolution continues. [TABULAR tab·u·lar adj. 1. Having a plane surface; flat. 2. Organized as a table or list. 3. Calculated by means of a table. tabular resembling a table. DATA OMITTED] [TABULAR DATA OMITTED] [TABULAR DATA OMITTED] [TABULAR DATA OMITTED] Corporate governance trends that will grow rapidly over the next five years... * CEO performance reviews * Written statement of corporate governance policy * Require CEOs and directors to own stock * Appoint corporate governance committee Corporate governance trends that will not become commonplace... * Limits on CEO compensation * Service limits for directors * Appoint management succession committee * A split chairman/CEO function Board Composition 25 Years Ago: * 21 percent of the boards reported between 16 and 25 total directors * 41 percent of the boards had between seven and nine inside directors 10 Years Ago: * The average board had four inside directors and 10 outside directors Today: * The average board has two inside and nine outside directors Cash Compensation for Directors 25 Years Ago: * 1 percent earned more than $12,000 in retainer A contract between attorney and client specifying the nature of the services to be rendered and the cost of the services. Retainer also denotes the fee that the client pays when employing an attorney to act on her behalf. and board-meeting fees. * 80 percent earned less than $10,000. 10 Years Ago: * Directors earned an average of almost $22,000 in retainer and board-meeting fees. Today: * Directors earn an average of almost $38,000 in retainer and board-meeting fees. Richard Ri·chard , Joseph Henri Maurice Known as "Rocket." 1921-2000. Canadian hockey player. A right wing for the Montreal Canadiens (1942-1960), he led his team to eight Stanley Cup championships and was the first player to score 50 goals in a M. Ferry is co-founder and chairman of Korn/Ferry International. He serves as an outside director of three public companies. |
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