Boards of directors trends, challenges, opportunities: the market is demanding increases transparency and accountability. New compliance mandates, regulations and shareholder activism are drivers, but governance is more than just compliance.

• Author: Shultz, Susan F.
• Position: Corporate Governance

Boards of directors matter--and now they matter more than ever. The market continues to demand increased transparency and accountability. New compliance mandates, regulation and shareholder activism are the drivers. Boards and their constituencies are clamoring for more strategic engagement and value-add by the directors. Yet this trend seems to be in stark contrast to the drumbeat for compliance and regulation.

How can boards balance the pressures from their attorneys, auditors and regulators to be risk averse (Read: safe) with Wall Street calling for creativity, innovation and job creation? Challenges and opportunities for boards have never been greater, and good governance is more than just compliance.

Here are 11 key issues confronting today's boards.

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Good governance means good people with unwavering integrity. When building their boards, leading companies are moving from friends of friends and celebrities to board members who will meaningfully contribute to the business. The trend is to "matrix" the existing board, catalog future needs and proactively recruit the best directors to fill the gaps.

Boards are now required to specify director qualifications in their proxies. In addition, NYSE Euronext requires boards to disclose not only who they recruit, but how they were recruited.

The first preference is to recruit active CEOs and secondly, retired CEOs. Yet 54 percent of all S&P 500 CEOs do not serve on an outside board. Today, the average CEO sits on only 0.7 boards, compared with an average of two outside boards 10 years ago.

More than half of all companies limit the number of public boards on which their CEO may serve. With the need for increased oversight and financial accountability, this trend might presage more board opportunities for financial experts. However, the Spencer Stuart Board Index records the smallest intake of new independent directors since 2001.

Still, one-third of all directors recruited last year were financial experts, and half of all boards responding to the Spencer Stuart survey are seeking directors with financial expertise. Forty-eight percent want industry expertise and 37 percent are looking for international experience. Regulatory, risk, technology and marketing expertise are also in strong demand. Despite common perceptions, the overwhelming majority of directors serve on only one board.

Only a quarter of new appointees are active senior executives, down from over half a decade ago. Twenty-one percent of the new independent directors are first-timers on outside public company boards and more new directors are retired CEOs (17 percent, up from 9 percent in 2000).

Globally, 40 percent of boards have no women, according to GMI Ratings' 2012 Women on Boards Survey, and diversity has stagnated, despite the new requirement that boards disclose how they have addressed the issue. In its 2010 Global Boardroom Study, Heidrick & Struggles notes that only 13 percent to 16 percent of all U.S. directors today are women, and a mere 162 minority directors sit on the boards of the top 200 S&P companies.

GLOBALISM

Boards of directors now recognize the importance of globalism in the makeup of their boards. The Spencer Stuart study reveals that 11 percent of the 302 new independent directors in 2010 were from outside the U.S.

If a company has a significant investment in a region, it can gain a tremendous advantage from a board member who has deep and relevant experience in that marketplace. Interestingly, industrial companies added the most international directors this year, comprising one-quarter of their new board members.

There are additional...