Independent Directors, Women and Minorities See Board Gains

Heeding the calls of stakeholders, S&P 500 boards are accelerating the addition of diverse directors, according to the latest Spencer Stuart U.S. Board Index. A record-breaking 59 percent of new independent directors hired were women or minority men. Let’s take a closer look at the findings.

January 30, 2020 – Standard & Poor’s 500 boards appointed 432 new independent directors in the 2019 proxy year, the most since 2004, and 59 percent were women and/or minorities, up from 50 percent the year before, according to a study by Spencer Stuart.

The 2019 U.S. Spencer Stuart Board Index found that boards are listening to shareholders’ and other stakeholders’ calls for increased diversity in their boardrooms, from gender, to age, race/ethnicity and professional background. Changes to overall numbers, however, continue at a slow rate because of persistently low boardroom turnover, said the search firm, with the incoming class again representing only eight percent of all S&P 500 directors.

“Board composition is being scrutinized as never before,” said Julie Hembock Daum, who leads Spencer Stuart’s North American board practice. “Boards are responding to the attention by increasingly casting a wide net to identify the director talent best aligned with the company’s current and forward-looking challenges, opportunities and strategies.”

Female representation among the incoming class of S&P 500 directors rose to 46 percent, the highest since Spencer Stuart began tracking this data in 1998. Women represented 26 percent of S&P 500 directors, up from 24 percent the previous year.

Financial Officers Gain

Just under one in four new S&P 500 directors (23 percent) were minorities (defined as African-American, Hispanic/Latino or Asian), said the board index report. Minority women represented 10 percent of the incoming class, up slightly from nine percent from the previous year. Minority men represented 13 percent of the new directors, an increase from 10 percent from a year earlier but still down from 14 percent two years previous. Minorities comprised 19 percent of all directors of the top S&P 200 companies, up from 17 percent from the year before.

The bulk of the incoming class (65 percent) came from outside the ranks of CEO, chair/vice chair, president and COO, said Spencer Stuart. Most were CFOs or other financial executives (27 percent of new directors) or division/subsidiary heads or top executives of functional units (23 percent of new directors).

Diverse directors were the driving force behind the changing profile of S&P 500 directors, said the board index study. Only 19 percent of the women and minority men joining S&P 500 boards were current or former CEOs, compared to 44 percent of the non-diverse men. Just 11 percent of the non-diverse men of the incoming class were current or former line or functional leaders, compared to 31 percent of the diverse directors. Just over one third of the new diverse directors were first-time directors, nearly double the 18 percent of the non-diverse directors.

Low turnover rates are likely to persist, said Spencer Stuart. Mandatory retirement policies were in place at 71 percent of S&P 500 boards, and these policies impact turnover. Age limits influenced the majority of director departures during the 2019 proxy season. Only 15 percent of sitting independent directors on boards with age caps were within three years of mandatory retirement.

Mandatory Retirement Age

Twelve percent of the companies reported that they did not have a mandatory retirement age, and 17 percent did not discuss mandatory retirement in their corporate governance guidelines.


Tackling Gender Imbalance between Boards and Executive Teams
Much has been written about gender diversity in the boardrooms of the world’s largest companies. But all of the focus on boards tends to detract from a much bigger issue – the troubling state of gender balance in top leadership teams. Board diversity is celebrated in annual reports and, for many companies, achieving a 40 percent female ratio on a main board is now viewed as a “healthy balance.”

Recent analysis of this year’s Fortune 100 by Armstrong Craven shows that only 25 percent of the overall leadership population is female and only nine percent of commercial and business roles are held by women.


Retirement ages continued to rise. For the first time, 75 was the most common mandatory retirement age, set by 42 percent of S&P 500 boards with a retirement age. Forty-six percent of boards with retirement age policies set the age at 75 or older, including four boards with a retirement age of 80. A decade earlier, only 15 percent of boards with a retirement age set it at 75 or older.

For the first time, total director pay (excluding independent chair pay) at S&P 500 boards averaged more than $300,000. The average total compensation for S&P 500 non-employee directors, including independent chairs, was around $305,000, a two percent year-over-year increase. The breakdown of director pay was unchanged, with 57 percent paid in stock awards, 38 percent in cash, three percent in stock options and two percent in “other” pay such as insurance premiums and charitable award programs.

Pay varied widely, with a $100,000 difference between the average total director pay of the highest and lowest paying industry sectors. Four sectors drove the overall average north of $300,000. Once again, the four highest-paying sectors were the only sectors averaging more than $300,000 in total pay: healthcare ($362,450), information technology ($331,840), telecommunications services ($331,076) and energy ($325,234). The four averaged $338,000 in total director compensation, but year over year their compensation was largely flat, ranging from a decline of 1.7 percent to an increase of 0.1 percent.

Attendance Fees Drop

The annual change in director total pay in four of the seven other sectors far outpaced inflation. Average total compensation increased four percent or more in the following sectors: financials (5.7 percent), real estate (4.9 percent), materials (four percent) and utilities (four percent).

Meeting attendance fees continued to decline. Only nine percent of S&P 500 companies paid non-employee directors for attending board meetings, down from 10 percent the year before and 43 percent a decade earlier. Twelve percent paid fees for attending committee meetings, compared to 27 percent five years before and 45 percent in 2009.

Director pay varied widely by sector, with a $100,000 difference between the average total director pay (excluding independent chair pay) of the highest and lowest paying sectors.

Three quarters of boards limited directors’ additional board activity, said Spencer Stuart. Seventy-seven percent of S&P 500 boards report having some limit on directors’ acceptance of other corporate directorships, an increase from 67 percent in 2009.

Limiting Service

Limits take different forms, with some applying to all directors and others applying to audit committee members or directors who are public company CEOs, said the board index report. Sixty-four percent of boards reported having a numerical limit for other board service that applies to all directors. Most of these boards limited members to three or four additional directorships.


Record Number of Women Win Directorships but Gender Parity Lags
Forty percent of new board seats on U.S. Fortune 500 companies went to women last year. Still, improvement is lagging. The total share of seats for women remains under 25 percent. Racial and ethnic board appointments unchanged at 23 percent.


Forty-two percent restricted the number of other audit committees on which their audit committee members may serve, and nearly all limited audit committee members to no more than two other audit committees. A total of 29 percent restricted the additional board activity of directors who are public company CEOs or are otherwise fully employed.

Nearly all (98 percent) of the 114 boards that did not report specific limits on joining other boards required directors to notify the board chair prior to accepting an invitation to join another company board and/or encourage directors to “reasonably limit” their other board service. Twenty-three percent of S&P 500 boards reported in their corporate governance guidelines a specific limit on the CEO’s outside board service. Among those that did, nearly all limited CEOs to one or two outside boards. Three boards allowed their CEOs to serve on three outside corporate boards.

The average board tenure, meanwhile, showed only a slight decline. The average tenure of independent directors on S&P 500 boards was eight years, a modest drop from 8.4 in 2009, said Spencer Stuart. The median tenure changed little in the same period, going from 8.2 a decade earlier to eight. On the majority of S&P 500 boards (61 percent), the average tenure of independent directors was between six and 10 years.

The longest average board tenure was 35 years, said the board index report. Longer average board tenures — of 11 or more years — were somewhat more common a decade earlier, when 19 percent of boards had an average tenure of more than 10 years, versus 15 percent in the 2019 proxy year.

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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