The power of recommendations in finding new directors.

PositionBOARD SURVEY - Survey

Ed. Note; In the summer of 2012, 860 public company directors responded to PwC for its annual survey of corporate directors. Of those, 70% serve on boards of companies with more than $1 billion in annual revenue, making the survey's findings reflective of what the firm says are "the practices and boardroom perspectives of many of today's world-class companies." How these companies are finding new directors--and why they are replacing ones they have--are covered in this excerpt from the survey report.

Boards take great care when inviting a new director to join, as the board needs to consider the skill sets required, along with intangibles like the individual's personality and work style. Similarly, the decisions about renominating existing directors are important ones.

Investors have an increased interest in board composition and are looking closely at the expertise individual directors bring. They are also focusing on board member demographics, including gender and racial diversity, director age, and tenure.

Finding new directors

When asked about sources used to recruit new directors, nine out of 10 board members say they look to the recommendations of other directors; 11% consider investor-recommended board candidates. This suggests that directors are most comfortable with individuals recommended by someone they know and trust.

Companies with over $10 billion in annual revenue were the least inclined to use investor input on board candidates (at 6%). About 67% of directors use search firms to identify board candidates.

While only about two dozen companies received shareholder proposals for proxy access to allow investor nominees, some suggest the number of these proposals will increase going forward--specifically at companies that are perceived to be underperforming or unresponsive to requests from their shareholders. If proxy access gains more traction, shareholder nominees may get more of the board's attention.

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What sources do you use to recruit new board members? 91% Other board members' recommendations 67 Search firms 55 Management recommendations 11 Investor recommendations 4 Public databases 2 Other Do you believe that any of your board members should be replaced for the folio wing reasons? 15% Aging has led to diminished performance 13 He/she does not have the expertise required 11 He/she is unprepared for meetings 10 He/she...

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