Board Turnover Falls Again at Tech Firms, Survey Says

Posted by: Rachael King on December 9, 2011

By Peter Burrows

After Sarbanes-Oxley became the law of the land in 2002, there was hand-wringing over whether public companies would be able to keep great directors on their boards. In the tech industry, at least, the more pressing issue seems to be getting them to leave.

According to a survey in late November by recruiting firm Spencer Stuart, board turnover at tech firms fell for the third year in a row this year. Only 29 percent of Silicon Valley firms added a new director in 2011, compared to 50 percent in 2008.

That’s not necessarily a bad thing. During turbulent economic times, it’s best to stick with proven quantities rather than introduce even more change, says study co-author Jonathan Visbal. “Boards have been battening down the hatches to ensure consistency,” he says.

Another reason to stick with known quantities is the increasing difficulty in finding the people most CEOs would most like to have on their boards: other CEOs. In recent years, many boards have added by-laws that restrict their CEO from sitting on more than one or two outside boards. In particularly short supply: CEOs who have expertise in digital media, to help companies acclimate to the post-Facebook world.

“Often companies go with younger candidates who may not have much experience, but that’s the trade-off they need to make,” says Visbal.

As for the directors themselves, it seems the trade-offs are getting easier. For the year, the average number of board meetings fell to 8, from 9.7 two years ago. Yet director pay increased 14 percent, to an average of $251,630. And the pay is far more reliable, since more of it is paid in cold hard cash. The number of companies that gave stock options to directors fell to 60 percent, from 72 percent in 2010. Restricted stock awards were also down, to 58 percent from 65 percent in 2010. While cash retainers fell slightly as well for the year, they’re up 78 percent since 2003, says study co-author Nyla Rizk.

The data comes in a year that has had more than its share of corporate governance fiascos. Yahoo fired Carol Bartz without having a successor in place. HP pushed out Leo Apotheker after less than a year on the job, and replaced him with director Meg Whitman. Still, the co-authors say the data does not suggest a decline in the quality of governance in tech.

“Governance has gotten better,” says Rizk, who notes that the number of boards that separate the chairman and CEO duties has risen from 45 percent in 2003 to 73 percent.

Since one wouldn’t expect a recruiter to bash his potential clients, I asked Paul Hodgson, a researcher with the Corporate Library, a corporate governance advisory firm, if he agreed that the fall in turnover was no cause for concern. He did.

“It’s a smart thing to do to stick with people who know the business well — unless, of course, you have a lousy board,” he says.

Reader Comments

zhanglandan

December 12, 2011 7:21 AM

"It's a smart thing to do to stick with people who know the business well---unless, of course, you have a lousy board." Just like Paul said in this article, I am quite agree with him. Those people are the key personnel of a company, whose development depends on them. It is not easy to find the right person, both internally and externally.
First, internally, or promote someone within the company, it is true that he may be familiar with the business, but he also may face many difficulties such as the redefine of his role, the relationships with his former colleagues and bosses, etc.
Second, externally, it is not that easy, too, even though it can bring fresh blood into the company. It will take such a long time to find the appropriate candidate and at the same time, after the recruitment, you need to wait for some time until them get on the right track. Sometimes, you even need to provide some training courses for them, which means the cost of money.
Therefore, I think that is the reason why board turnover falls nowadays. Anyway, it’s best to stick with proven quantities rather than introduce even more change.

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About

Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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