As Responsibilities Increase, US Corporate Boards are Taking a Fresh Look at Their Committees

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Dec 07, 2023, 09:00 ET

NEW YORK, Dec. 7, 2023 /PRNewswire/ -- Science and technology. Health and safety. ESG and sustainability. A few years ago, board committees on such topics were nearly non-existent. But as boards expand their role to address a broadening array of topics, they are not only assigning responsibilities to existing committees but also starting to form new types of committees.

As detailed in a new report by The Conference Board with data from ESGAUGE, 74% of S&P 500 firms have more than the three committees required by stock exchange listing standards: 36% have four, 21% have five, and 13% have six. When it comes to the allocation of ESG responsibilities, virtually all S&P 500 firms disclose assignment of such responsibilities to the full board and/or one or more committees. For example, 89% of the companies have assigned human capital management issues (including DEI, employee health and safety, talent recruitment and development, corporate culture, among others) at the board or committee level.

The share of S&P 500 board committees on science and technology increased from 10% in 2018 to 14% in 2023, and committees on environmental, health, and safety increased from 7% to 10%. ESG and sustainability committees are just starting to emerge. As new types of committees begin to take root, there has been a slight decline in some of the traditional board committees, including the executive committee (from 33% in 2018 to 31% in 2023) and finance committee (from 30% to 25%).

"The traditional approach of having three standing board committees—audit, compensation, and nominating—was established over 20 years ago when the focus was on the board's independent oversight of management. While boards still fill that role, they are increasingly serving as strategic thought partners for management across a broader array of topics, and boards should take a fresh look at whether their committee structure effectively supports the board's current remit," said Paul Washington, Executive Director of The Conference Board ESG Center.

Even as boards are increasingly expected to take on a strategic thought partnership role, there has been a decline in business strategy experience among independent board chairs and lead independent directors. In the S&P 500, such experience among independent chairs dropped from 78% in 2022 to 72% in 2023, and from 70% to 66% among lead independent directors.

The report was produced in collaboration with Debevoise & Plimpton; KPMG; Russell Reynolds Associates; and the John L. Weinberg Center for Corporate Governance. Additional findings and insights include:

Board Committees
General ESG oversight responsibilities are most frequently allocated to the nominating/governance committee, but companies may want to address the role of the full board with respect to ESG.

Of the firms in the Russell 3000 that have assigned responsibilities for ESG at the board and committee level, only 6% have given general ESG strategy and oversight to the full board.
Most have allocated this area to the nominating/governance committee (72%).

"While committee responsibilities appropriately vary by company, the full board may be better equipped to oversee the integration of ESG and stakeholder interests into the company's business strategy and operations," said Merel Spierings, author of the report and Senior Researcher at The Conference Board. "Even if boards are allocating ESG responsibilities to the nominating/governance committee only temporarily, they should consider whether that committee has the right composition and enough resources to fulfill its responsibilities effectively."

Board Meetings
Despite increasing workloads, the frequency of board meetings has dropped to below pre-pandemic levels.

S&P 500: Companies held an average of 7.5 formal board meetings in 2022, not only down from 9.1 in 2020, when the pandemic began, but also down from 7.8 before the pandemic.
Russell 3000: Companies held 7.5 meetings on average in 2022, down from 9.5 meetings in 2020 and from 8.0 before the pandemic.
Several factors may be driving this decline:
- Companies are reporting that it's now more common (compared to pre-pandemic) for boards to hold informal conference calls between regularly scheduled board meetings, in which no board decisions or minutes are taken and that do not count as board meetings under SEC disclosure regulations.
- The flow of information has shifted. More is being shared with the board through portals.

Board Leadership
At larger companies, the trend toward board chair independence seems to have plateaued:

At S&P 500 firms, 36% have an independent chair, a percentage that has remained unchanged since 2021.
- At 44% of S&P 500 firms, the current CEO also serves as chair (a slight increase from 42% in 2022), while at the same time, average shareholder support for CEO/chair separation proposals remains around 30%.
- The chair being a non-independent director other than the CEO has been hovering around 20%.
There's a strong correlation between company size and board leadership model:
- Most of the largest companies combine the CEO/board chair role, whereas most of the smallest companies have an independent chair.
- As of August 2023, the CEO also served as chair at 51% of companies with annual revenues of $50 billion and over. For firms with annual revenues under $100 million, this percentage was only 26%.

"CEOs of smaller companies with limited resources may wish to focus on managing the firm and have a chair who focuses on the board and oversight. By contrast, larger companies may place a premium on having a single individual who provides leadership for the company, can engage with all stakeholders, and is accountable for the firm's performance," said Umesh Chandra, Executive Director of ESGAUGE.

Fewer companies are requiring a CEO/chair combination, while more are giving their boards flexibility between CEO/chair separation and combination.

The share of companies with a policy allowing the board to determine its leadership structure is increasing:
- S&P 500: 76% in 2023 compared to 72% in 2018. Russell 3000: 72% compared to 63%.
The share with a policy requiring the model of CEO/chair combination is decreasing:
- S&P 500: 6% in 2023 compared to 11% in 2018. Russell 3000: 7% compared to 12%.
The share with a policy requiring CEO/chair separation varies by company size:
- S&P 500: 17% in 2023 compared to 16% in 2018. Russell 3000: 20% compared to 23%.

Informing the report's findings and insights are 1) public disclosure data, as recent as August 2023; and 2) insights from governance leaders at a Chatham House Rule discussion, where they discussed their views on current trends in corporate boardrooms.

About The Conference Board
The Conference Board is the member-driven think tank that delivers Trusted Insights for What's Ahead™. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.ConferenceBoard.org

About ESGAUGE
ESGAUGE is a data mining and analytics firm uniquely designed for the corporate practitioner and the professional service firm seeking customized information on US public companies. It focuses on disclosure of environmental, social, and governance (ESG) practices such as executive and director compensation, board practices, CEO and NEO profiles, proxy voting and shareholder activism, and CSR/sustainability disclosure. Our clients include business corporations, asset management firms, compensation consultants, law firms, accounting and audit firms, and investment companies. We also partner on research projects with think tanks, academic institutions, and the media. www.esgauge.com

About Debevoise & Plimpton
Debevoise & Plimpton LLP is a premier law firm with market-leading practices, a global perspective and strong New York roots. We deliver effective solutions to our clients' most important legal challenges, applying clear commercial judgment and a distinctively collaborative approach. Our Corporate Governance Practice includes lawyers from our Capital Markets, Mergers & Acquisitions, Executive Compensation, Commercial Litigation and White Collar and Regulatory Defense teams—all with decades of experience counseling and representing boards and senior managers. www.debevoise.com

About the KPMG Board Leadership Center
The KPMG Board Leadership Center (BLC) champions outstanding corporate governance to drive long-term value and enhance stakeholder confidence. Through an array of insights, perspectives, and programs, the BLC—which includes the KPMG Audit Committee Institute and close collaboration with other leading director organizations—promotes continuous education and improvement of public and private company governance. BLC engages with directors and business leaders on the critical issues driving board agendas—from strategy, risk, talent, and ESG, to data governance, audit quality, proxy trends, and more. Learn more at kpmg.com/us/blc

About Russell Reynolds Associates
Russell Reynolds Associates is a global leadership advisory firm. Our 600+ consultants in 47 offices work with public, private, and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today's challenges and anticipate the digital, economic, sustainability, and political trends that are reshaping the global business environment. From helping boards with their structure, culture, and effectiveness to identifying, assessing and defining the best leadership for organizations, our teams bring their decades of expertise to help clients address their most complex leadership issues. We exist to improve the way the world is led. www.russellreynolds.com

About Weinberg Center for Corporate Governance
The John L. Weinberg Center for Corporate Governance was established in 2000 at the University of Delaware and is part of the Lerner College of Business and Economics. It is one of the longest-standing corporate governance centers in academia, and the first and only corporate governance center in the State of Delaware, the legal home for a majority of the nation's public corporations. The Center's mission is to provide a neutral forum for business leaders, members of corporate boards, stockholders, the judiciary, the legal community, academics, students, and others interested in corporate governance issues to interact, learn and teach, with the goal of positively impacting and improving the field of corporate governance and the capital markets. The Center is recognized as a thought leader in the corporate governance field. www.weinberg.udel.edu

SOURCE The Conference Board