Independent directors: new class of 2017

Ernst &Young

2018-05-15 / www.ey.com




Companies are continuing to bring fresh and diverse perspectives into the boardroom and to enhance alignment of board composition with their forward-looking strategies. 

EY shares the results of an analysis of independent directors who were elected by shareholders to the board of a Fortune 100 company for the first time in 2017 – what we refer to as the “new class of 2017.” 

survey looked at corporate disclosures to see what qualifications and characteristics were specifically highlighted, showcasing what this new class of directors brings to the boardroom. The research was based on a review of proxy statements filed by companies on the 2017 Fortune 100 list. We also reviewed the same 83 companies’ class of 2016 directors to provide consistency in year-on-year comparisons. 

Perspective 

What we’re hearing in the market is that boards are seeking slates of candidates who bring a diverse perspective and a range of functional expertise, including on complex, evolving areas such as digital transformation, e-commerce, public policy, regulation and talent management. As a result, boards are increasingly considering highly qualified, nontraditional candidates, such as non-CEOs, as well as individuals from a wider range of backgrounds. These developments are expanding the short lists of potential director candidates. 

At the same time, companies are expanding voluntary disclosures around board composition. Our review of Fortune 100 disclosures around board composition found that:

     

While diverse director candidates are in high demand and related shifts in board composition are underway, these developments may be slow to manifest. For example, consider that the average Fortune 100 board has 10 seats. In this context, the addition of a single new director is unlikely to dramatically shift averages in terms of gender diversity, age, tenure or other considerations.That said, whether a board’s pace of change is sufficient depends on a company’s specific circumstances and evolving board oversight needs. Boards should challenge their approach torefreshment, asking whether they are meeting the company’s diversity, strategy and risk oversight needs. Waiting for an open seat to nominate a diverse candidate may mean waiting for the value that diversity could bring.In 2018, we anticipate that companies will continue to offer more voluntary disclosure on board composition, showing how their directors represent the best mix of individuals for the company – across multiple dimensions, including a diversity of backgrounds, expertise, skill sets and experiences.

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