Nominating/governance committees today are re-focusing on the fundamentals when it comes to board composition. Spencer Stuart’s latest annual survey of nominating/governance committee chairs, conducted in the first quarter of 2023, shows how committees are shining a renewed light on the essential skills needed in the boardroom. The highlights below reflect the perspectives of 141 S&P 500 and MidCap 400 nominating/governance committee chairs who participated in the survey.
Board composition and CEO succession are top priorities
Nominating/governance committees are increasing their scrutiny of the skills they have on their board and what they need, and solidifying their plans for board refreshment. Indeed, board composition is the top focus area for committees (56% of respondents, compared to 37% in 2022), followed by CEO succession (52% of respondents, an increase from 46% a year ago). Meanwhile, environmental, social and governance (ESG) oversight is third (35% of respondents, from 65%), after taking the top spot in last year’s survey.
20 years post-Sarbanes-Oxley, financial expertise ranks highly
In 2023, financial expertise is the top recruitment priority in our survey, noted by 38% of respondents. We believe this is less a reflection of boardroom gaps, and more the result of natural turnover among a set of skills that remains critical to boards. With the landmark Sarbanes-Oxley Act of 2002 now 20 years old, the second generation of financial experts is now rolling off boards. Adding a retired CEO or COO was rated second highest (24%). Adding an active CEO or COO or operational experience followed closely behind at 23%, tied for third place. Our view is that as fewer CEOs serve as directors, boards are increasingly seeking out executives with recent experience running a public company and reporting to a board.
23%
Operational experience (e.g., GM or P&L leader)
Mandatory retirement/term limits continue to drive board refreshment, but other approaches are gaining steam
In terms of the top drivers of board refreshment this year, we saw some changes from past surveys. Mandatory retirement or term limits was the top driver of board refreshment this year, cited by 68% of respondents, an increase of 23 percentage points year over year. Adding new skills stayed steady at 66% of respondents. Third is applying the results from board and director evaluations (25.5%), which was up sharply from 2022 (14%).
Increasingly, boards are taking a forward-looking approach to ensuring they have the right perspectives in the boardroom. Rather than thinking exclusively in terms of mechanisms like mandatory retirement or term limits to encourage turnover, they are adopting intentional, ongoing processes such as director skill matrices and board and director assessments to evaluate board expertise and performance. The goal is to create the expectation that directors’ continued service depends on their performance and the value and relevancy of their skills.
Cyber, digital expertise is more sought-after
“Specialist directors” are generally not in high demand. However, we are seeing an uptick in interest in directors with technology backgrounds. While the percentage of boards looking for directors with backgrounds in technology (21% of respondents) was down from last year (38%), there are increases in respondents seeking digital (20%, up from 12%) or cyber (19%, up from 8%) expertise.
21%
of boards are looking for directors with backgrounds in technology, down from 38% in 2022.
20%
of boards are looking for directors with backgrounds in digital, up from 12% in 2022.
19%
of boards are looking for directors with backgrounds in cyber, up from 8% in 2022.
Additionally, 60% of respondents cited cybersecurity as a topic that would be beneficial toward director development, training and education, the second highest after industry trends and emerging issues (75.9%).
76%
of respondents cited Industry trends and emerging issues as the number one educational opportunity for boards
60%
of respondents cited cybersecurity as the second highest educational opportunity for boards
Although fewer respondents cite either gender or racial/diversity as top driver of recruitment — 19%, eighth highest, a year after being the second highest at 37% — we see overall diversity continuing to be a key consideration for boards.