2010 NACD Annual Survey of Public Governance Shows Divergence Between Current Board Practices and Compliance Expectations |
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By: National Association of Corporate Directors Posted: 2010-10-19 06:26:17 |
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The 2010 National Association of Corporate Directors (NACD) Annual Public Company Governance Survey shows that boards have made substantial strides addressing issues stemming from the financial crisis including an increased focus on risk oversight, compensation, shareholder communications and composition. Of the 700-plus corporate director respondents, an overwhelming majority (96 percent) believe their current governance structures enhance their ability to fulfill their fiduciary responsibilities.
Full results of the survey were made available yesterday at the 2010 NACD Corporate Governance Conference in Washington, DC. In his opening remarks, Ken Daly, NACD CEO and President, addressed nearly 800 public company directors and corporate governance leaders, touching on the survey's implications, "It's encouraging that corporate directors have been putting in the time and doing the work necessary to appropriately respond to the new business reality, and maintain a focus on driving sustainable performance. Knowing that the survey gauges director sentiment prior to the broad changes mandated by the governance provisions of the Dodd-Frank Act, it is unclear whether this progress will be interrupted as boards shift focus to comply with more upcoming regulation." Daly left attendees with a call to action: "As new regulatory demands continue, it is paramount that boards not allow their ultimate focus on corporate strategy and protecting shareholder value to suffer at the expense of compliance. Boards need to find ways to focus on the important, while satisfying the urgent." The 2010 survey shows that over the past three years, corporate directors have sharpened their focus on many of the same issues that new regulations will revisit in the coming months: Heightened Focus on Core Board Responsibilities – While strategic planning and oversight and corporate performance/valuation remained the top two priorities, the total percentage of directors who consider them high priorities increased significantly. Strategic planning and oversight was cited as the #1 priority in this year's survey by 68 percent of respondents, up from 24 percent in 2007. Corporate performance and valuation, this year's #2 priority, also increased significantly – as rated by 48 percent of directors in 2010 versus 16 percent in 2007. Urgency for Risk and Crisis Oversight – This year, corporate board directors ranked risk and crisis oversight as among their top three priorities compared to 16th in 2007. Further, the full board has surpassed the audit committee as the group primarily assigned the majority of tasks related to risk oversight. In 2010, 45 percent of companies consider risk oversight as a full board responsibility, while in 2007, 76 percent of companies considered risk oversight to be the responsibility of the audit committee. The use of board-level risk oversight/crisis management committees are also becoming more prevalent from just one year ago, as evidenced by the 100 percent increase in 2010 over 2009. Dramatic Shifts in Matching CEO Pay to Performance –78 percent believed that their company's executive compensation program improved corporate performance, and three out of every four believed that their CEO's pay matched their performance. This is a dramatic increase in accountability for compensation from 2007 when 77 percent said CEO pay was excessive. 91 percent have established specific and measurable short-term goals for CEO performance. Comprehensive Communications and Proxy Materials – More than 90 percent of directors think their governance practices are sufficiently explained in proxy materials and other communications and also felt that the current disclosure requirements were adequate. According to the 2010 survey, boards are also taking on more responsibility that has led to specific actions they feel are improving governance structures, including: Increasing Separation of CEO and Chairman Roles & Use of Lead Director – More boards cite the separation of chairman and CEO roles and use of a lead director (66 percent of boards separate the Chairman and CEO roles, up from 45 percent in 2007) as improving their governance structures. Satisfaction with Board Skills – 92 percent of directors were satisfied with the skill sets of their fellow directors, agreeing that their board had the right type and level of skills and experience. Educational Opportunities Making a Difference – More directors are taking advantage of educational opportunities to improve boardroom practices; 96 percent of boards attribute additional education as playing a major role in their ability to be more effective. More Hours on the Job – Directors are spending more time in the board meetings – reporting a 25 percent increase in board meeting hours vs. last year, and more boards are using outside consultants for full board evaluations. About the Survey The NACD annual governance survey measures the opinions of more than 700 directors serving on boards of both private and public companies traded on the New York Stock Exchange, NASDAQ, and the American Stock Exchange. NACD sent approximately 18,000 email invitations and 2,000 paper surveys asking directors and others who serve on boards to participate. Respondents opted to answer a public or private organization survey, or both, as applicable; those who serve on multiple boards were encouraged to fill out a survey reflecting their experiences with each. In analyzing the data, response percentages were calculated based on the total number of responses specific to each question. About NACD The National Association of Corporate Directors (NACD) is the only membership organization delivering the information and insights that corporate board members need to confidently navigate complex business challenges and enhance shareowner value. With more than 10,000 members, NACD advances exemplary board leadership. NACD is focused on creating more effective and efficient boards through director-led education and peer forums to share ideas and leading practices based on more than 30 years of primary research. Fostering collaboration among directors and governance stakeholders, NACD is shaping the future of board leadership. To learn more about NACD, visit NACDonline.org. |
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