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.