Nominating/governance committees are increasing their focus on board composition and director succession planning, while CEO succession planning and board effectiveness remain top priorities, according to the findings of the 2024 edition of Spencer Stuart’s annual survey of nominating/governance committee chairs.
For more than a decade, we have surveyed nominating and governance committee members on their focus areas for the next three years. The highlights below reflect the perspectives of 83 S&P 500 and MidCap 400 nominating/governance committee chairs who participated in the survey.
Board composition and succession planning is the top priority
Board composition and succession planning was the overwhelming number-one priority for nominating/governance committees, selected by more than three-quarters (77%) of respondents—up from just over half (56%) last year. The result suggests committees are amping up their work on how their boards are constructed, and whether they have the right skills to be most effective.
Meanwhile, ESG oversight continued its drop, ranking fifth at 20%, just two years after it was the top priority. This decline could suggest a broader corporate retreat from the topic, but it may also reflect the significant strides in board approaches to and oversight of ESG that have already occurred in recent years. In fact, our recent Sustainability in the Spotlight survey found that most companies (90%) in North America expect a continued focus (60%) or stronger focus (30%) on ESG over the next five years. It’s also possible that recent pressures — from war in Europe to geopolitical uncertainty to inflation and other economic issues — have shifted boards’ focus to look more broadly at their construction and capabilities.
Top five priorities for nominating/governance committees
Note: Director onboarding was not offered as an answer option in previous surveys.
CEO succession remains a top committee priority
CEO succession once again ranked as the second highest priority over the next three years, cited by half of respondents (50%). Additional questions in our survey offered insights into how boards are governing CEO succession today. In terms of which committees oversee CEO succession planning:
56%
of respondents report nominating/governance committee
24%
of respondents report the compensation committee
9%
of respondents said an ad-hoc succession committee led the efforts1
About three-quarters (74%) said their company has a long-term succession plan and an emergency plan, but 20% said they have an emergency plan only.
One notable change from last year is that succession planning efforts are moving to a shorter time frame. The plurality of respondents (40%) say they begin the process two to three years before a projected transition, a sharp increase from last year’s survey. Only 21% say they look five or more years out to begin planning. This runs counter to best practice; our experience shows that the earlier you start CEO succession planning, the better the transition and outcomes for the new CEO. Starting several years before a potential transition enables the board to develop more trust and transparency with each other and with the sitting CEO about all aspects of the succession process. This includes having in-depth conversations about possible candidates, important trade-offs in what they need in the next CEO and how they will navigate difficult choices together as the transition gets closer.
How far in advance boards start a CEO succession planning process
1 Unlike previous years, the survey did not include “full board” as an option. About 12% of respondents selected “other” as leading CEO succession planning.
Director onboarding, development and education are rising board imperatives
A new answer option for 2024, director onboarding, education and development, was cited by 26% of respondents, landing it fourth overall in terms of nominating/governance committee priorities. As risks have multiplied and board members have come under increased pressure to oversee complex emerging issues, the ranking suggests formalized educational efforts have taken on greater significance to enhance the knowledge and readiness of the board. What topics would most be beneficial for director development, training and education?
75%
Industry trends
73%
Technology/digital
70%
Cybersecurity
A push for relevant expertise is driving board refreshment
More than one-quarter of respondents (26%) said they have one or more directors who they believe should be replaced, up from 23% last year. Of those, their top reasons for change:
62%
Director skills/expertise no longer current
29%
Director skills/expertise no longer relevant to the board
21%
Director underperformance
Adding new skills to the board was one of the top drivers of board refreshment, followed by replacing directors due to mandatory retirement policies or term limits. Applying the results from board/director evaluations ranked third (26%) and replacing existing director(s) whose skills were no longer a board priority ranked fifth (15%). Replacing director(s) due to underperformance (7%) jumped to sixth place from tenth last year, suggesting more boards are having the difficult discussions to promote boardroom change and enhance board performance.
Top drivers of board refreshment
Top-executive wisdom, operational expertise and digital/technology experience rank as the leading recruitment priorities
When asked for their top priorities for recruiting new board members, CEO/COO experience was number one (51%) and operational experience (GM or P&L backgrounds) ranked third (41%, up significantly from 23% last year). Past board experience jumped to fourth (37%) from 11th a year ago, suggesting that boards are looking to strengthen their governance abilities and enhance their credibility with stakeholders.
Meanwhile, digital/technology expertise is clearly in demand, ranking second (42%), while cybersecurity experience was seventh (15%). Among those who selected digital/technology experience, big data/analytics was the highest ranked expertise (41%) followed by AI (24%). This aligns with our recent director pulse survey on specialized directors, which showed that not only were directors with cybersecurity and digital/technology skills among the most commonly appointed “specialists” to boards, but also the most positive overall impact on board performance.
Top five director recruiting profiles
51%
CEO/COO
vs. 47% in 2023
42%
Digital/technology experience
vs. 41% in 2023
Among those who chose Digital/technology experience:
41%
cited big data/analytics expertise
41%
Operational experience (GM or P&L leader)
vs. 23% in 2023
37%
Previous board experience
vs. 11% in 2023
32%
Financial experience
vs. 38% in 2023