Governance Trends Shaping the Board of the Future - Diversity and Performance

First segment of PwC's Annual Corporate Directors Survey sheds light on changing governance landscape

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Sep 09, 2014, 03:41 ET

NEW YORK, Sept. 9, 2014 /PRNewswire/ -- PwC's 2014 Annual Corporate Directors Survey reveals corporate directors' views on board performance and diversity. The findings indicate a growing concern regarding the replacement of underperforming board members and differing opinions among male and female directors concerning the importance of gender and racial diversity.

This past summer, 863 public company directors responded to PwC's 2014 Annual Corporate Directors Survey. Of those, 70% serve on the boards of companies with more than $1 billion in annual revenue.

"Corporate governance continues to evolve," said Mary Ann Cloyd, Leader for PwC's Center for Board Governance. "We structured this year's survey to gauge director sentiment on a number of key governance trends shaping the board of the future. Two of these trends involve how board performance and board diversity are taking center stage."

In today's release, PwC provides key findings relevant to these particular trends:

Directors are more sensitive about low support for board nominees. 56% of directors now say that negative voting in the 11-25% range would cause them to be concerned about re-nomination, compared to less than half last year. The percentage of directors who say that only negative shareholder voting in excess of 40% would cause them to rethink re-nomination decreased five percentage points.
Thirty-six percent of directors say someone on their board should be replaced – a jump from 31% only two years ago. Less tenured directors are the most likely to believe someone on their board should be replaced – nine percentage points more so than those serving 10 or more years. Diminished performance due to aging, lack of expertise and not being prepared for meetings are the top reasons for dissatisfaction with peers.
The percentage of directors who see impediments to replacing an underperforming director grew to 53% from 48% last year. A higher proportion of directors said the biggest reason was that board leadership was uncomfortable addressing the issue. Directors also cited a lack of director assessments and ineffective board assessment processes as impediments to addressing director underperformance.
Consistent with the last several years, financial, industry and operational expertise are seen as the most important director attributes. This year, financial expertise tops the list (described as very important by 93% of directors). Industry and operational expertise follow in importance.
Male and female directors have differing views about the importance of gender and racial diversity on their boards. Female directors are far more likely to consider board diversity important, with over 60% of them describing gender diversity as very important, compared to only one third of males. Similarly, over 40% of female directors describe racial diversity as very important versus only one quarter of their male counterparts.
The evolution of gender diversity on boards continues. Almost one third of male participants in PwC's survey have been on their board for more than 10 years, compared to only 10% of females. In the Fortune 50, female directors tend to be younger, with an average age of 60 – compared to 63 for males^[i]. Further, 24% of all new S&P 500 directors named in the last two years have been women^[ii] while female composition of boards is currently 18%. Given the facts that current female board members are younger and less tenured than their male counterparts and a higher percentage of new directors are women, it is reasonable to project that the board of the future will include a higher proportion of women than is seen today.

To download all of this year's survey findings on board effectiveness and the evolution of board diversity, please visit: www.pwc.com/us/directorssurvey.

Additional survey data on the following governance trends will be available from PwC as follows:

September 16, 2014—Board practices and priorities
September 23, 2014—Information technology and cybersecurity
September 30, 2014—Strategy and risk management
October 7, 2014—Director communications and executive compensation
Complete survey results will also be released on October 7, 2014

About PwC's Center for Board Governance
PwC's Center for Board Governance is a group within PwC whose mission is to help directors effectively meet the challenges of their critical roles. This is done by sharing governance leading practices, publishing thought leadership and offering forums on current issues.

For more information, please visit http://www.pwc.com/US/CenterForBoardGovernance.

About the PwC Network
PwC firms help organizations and individuals create the value they're looking for. We're a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.

^[i] Based on a PwC review of most recent relevant proxy statements
^[ii]Spencer Stuart Board Index 2013

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SOURCE PwC