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Update on the current board issues: August 2013

Inside this edition

Board renewal: Taking a fresh look at board composition

Many boards today are trying to figure out if they have the proper skills and experience to guide their companies now and in the future. Each board needs to consider whether the backgrounds and experience of its existing directors are appropriate or if new skills are needed. Recently, some critics have been outspoken about their perception of deficiencies in the current state of board renewal.

And some board members themselves are questioning the competency of their fellow directors. While a majority of directors at companies with annual elections are elected with at least 90% of the vote, there are still plenty of directors dissatisfied with their current board’s composition. Early results from PwC’s 2013 Annual Corporate Directors Survey show that 35% of 934 directors responding say someone on their board should be replaced, up from 31% a year ago. The top three reasons cited are diminished performance because of aging, lack of expertise, and lack of preparation for meetings.

On average, directors are getting older and fewer are leaving boards to make way for the next generation. The 2012 Spencer Stuart US Board Index reports that the number of new directors has slowed to 291 of 5,184 total director seats in 2012, a 27% decrease from 2002. At the same time, the average age of directors (68), average board tenure (8.7 years), and mandatory retirement age (72-75) have all risen. Currently 73% of S&P 500 companies have existing mandatory retirement age policies, but sometimes they are waived. Only 4% of S&P 500 boards specify director term limits with the majority setting the limits between 10 and 15 years.

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