Reforms are increasing pressures and workload in the boardroom, but directors remain committed to governance, according to a recent study by Corporate Board Member magazine. The survey responses of directors of public companies will be highlighted in the magazine's special year-end "What Directors Think" issue.
Corporate Board Member's second annual "What Directors Think" study measures the opinions of directors and CEOs of publicly traded companies listed on the New York Stock Exchange, NASDAQ Stock Market, and American Stock Exchange. The 2003 survey reveals noticeable changes in directors' opinions over the past year.
Greater scrutiny and reporting requirements have significantly increased board members' workloads. Three-quarters of survey respondents are devoting more time to their director duties in 2003 than in 2002--an average of 19.2 hours a month, up from 14.1. The percentage of directors who reported board meetings lasting more than five hours increased sevenfold from 7% in 2002 to 50% in 2003. On the other end of the spectrum, the percentage of directors whose meetings lasted less than two hours dropped by nearly 90% from 2002.
With increased pressures, workload and time commitment, most directors believe an increase in pay should follow, especially for committee chairs. Of survey respondents, 81% said audit committee chairs deserve better pay, compared to 54.1% in 2002. On their own behalf, 80% of respondents said they are not paid enough for their board duties.
Board evaluations have become more commonplace as well. In the 2003 survey, just over 50% of respondents said their boards were formally evaluated, compared to 33% in 2002. And of those evaluated, 98% rated board evaluations effective versus 85% previously. In addition, 83% of respondents said board members should be individually evaluated, compared to 76% in 2002.
Despite increased pressure and workload, reforms have their upside, too. Directors now think they are less likely to be sued in a securities case thanks to better governance--73% said so this year compared to 66% in 2002. In addition, more than 60% of survey respondents said good governance practices mean lower premiums and better coverage by directors' and officers' insurance, compared to 51% in 2002. Moreover, 86% of the 2003 survey participants believe good governance practices improve a company's image, and 46.7% believe it benefits a company's stock price.
"It really isn't much of a surprise that some of the results show significant variances over last year's survey," said TK Kerstetter, president of Board Member Inc./Corporate Board Member. "Sarbanes-Oxley and other corporate reforms are impacting today's boardrooms, and the board members' responses certainly support that trend."
Other survey findings include:
- Dividing the roles of CEO and chairman is still up for debate among directors -- 56% of survey respondents said they do not believe the positions should be divided. Only 15 Fortune 500 companies currently have individual chairs, as defined by the NYSE.
- 83.9% of survey respondents feel they are more at risk personally because of the Sarbanes-Oxley Act.
- 51.3% of the survey participants said it has been "difficult" or “somewhat difficult" for their boards to recruit a director with financial expertise.
- 87.1% of directors said their boards are "very effective" or "effective" at challenging management; only 2.3% said their boards are "very ineffective."
- 46.2% of directors said board members should attend director education seminars.
The complete survey and results can be found on Corporate Board Member's website at http://www.boardmember.com