U.S. boardrooms are reshaping themselves with fresh skills, qualifications and perspectives.
Now in its 36th year, the U.S. Spencer Stuart Board Index examines the latest data and trends in board composition, board governance practices and director compensation among S&P 500 companies.
Spencer Stuart Perspective for 2021
U.S. corporate boards have been reshaping their composition in recent years, adding new skills and perspectives. In the past several years, increasing gender diversity was a top priority, but more recently, we have seen a growing focus on enhancing the racial/ethnic diversity of the boardroom.
One tactic boards have used to accelerate change in the boardroom is to increase their size. In the 2021 proxy year, for example, 78 boards expanded to add one or more women directors, on top of the 76 boards that expanded to increase gender diversity in 2020. Eighty-eight boards increased their size to add racial/ethnic diversity. These boards added a total of 114 directors who are Black/African American, Asian, Hispanic/Latino/a, American Indian/Alaska native or multiracial — 37 of whom are women.
The focus on diversity is likely to continue. Our survey of nominating/governance committee chairs found that adding racial/ethnic diversity will be a recruiting priority for the next several years, as will bringing on directors with global perspective and corporate experience, including in technology and finance. But boards cannot always increase in size to bring on needed skills or backgrounds.
Making meaningful progress on recruiting priorities — and ensuring they continually have the right perspectives around the board table in a dynamic business environment — will require many boards to embrace a new mindset. Rather than thinking in terms of mechanisms to encourage turnover, such as mandatory retirement or term limits, forward-looking boards will adopt a refreshment mindset and an intentional and ongoing process for evaluating whether they have the right expertise in the boardroom.
These boards will compare the skills and attributes of current directors with those that are critical to the company’s long-term strategy to identify and address any gaps or overcapacity. Tools such as board and director assessments and director skill matrices can be useful for evaluating whether the current board members are still the right ones to address the organization’s strategy. When they are not, or director performance is lacking, these boards will have the courage and culture to make a change. They will create the expectation that directors’ continued service depends on their performance and the value and relevance of their skills on a forward-looking basis.
Boards that take this approach will be well-positioned to regularly inject new and needed perspectives into their deliberations. They also will reduce reliance on the retirement-based refreshment approach many boards take today, in which the oldest person on the board rolls off, regardless of his or her contribution. And when boards adopt a refreshment mindset and more frequent turnover, directors are less likely to feel the perceived stigma of leaving a board before retirement age.
Establishing a refreshment mindset also aligns boards with investors, who expect boards to regularly refresh their skill sets based on the forward-looking strategy. Many investors have expressed a preference for a mix of tenures in the boardroom: roughly a third each of short-, medium and long-tenured directors.
As boards increase their refreshment, they also should ensure that they are preparing a diverse pipeline of directors for board leadership roles. Diversity in leadership can elevate important perspectives and increase the sense of belonging in the boardroom for all directors.
Boards typically tap experienced directors for key leadership roles because they already have institutional knowledge of the company, familiarity with the key issues, and relationships with other board members and management. Forward-looking board succession planning anticipates the departure of board and committee leaders and ensures that the board has someone with the right skills, time and commitment to serve.
To help develop directors for board leadership, committee chairs will ensure that newer members gain deeper exposure to committee responsibilities and develop a perspective on which committee members could be strong committee chairs. The use of “board buddies” — pairing longer-tenured directors with new directors — can help new directors more quickly get up to speed on board culture, issues and responsibilities, while enabling established directors to see where they might best serve in future leadership roles.