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Shareholders Suspect Poor Governance from Stagnant Boards

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February 19, 2016

Many boards address succession only on an as-needed basis when facing an impending vacancy, which can lead to challenges in a variety of scenarios. Shareholders are taking more notice of how the directors represent their interests, and a significant increase in proxy access proposals—and approvals—occurring in 2015 has materially changed how boards assess themselves. As a result, more proactive and thoughtful succession has become a necessity to prove the appropriate agility and effectiveness of a board.

During Equilar’s first-ever Board Leadership Forum in early February—co-hosted with Nasdaq—experts from Spencer Stuart and directors from TEGNA, Rosetta Stone and Travelzoo joined moderator TK Kerstetter to talk about the hot-button issues surrounding board succession. As one speaker noted, everything in the business world is changing—markets, technology, demographics—but boardrooms are not. Despite differing opinions on how to conduct assessments, the panel agreed that an effective board and director assessment process prompts honest conversations about refreshment. Without honest conversation regarding the skills of the people in the boardroom, turnover will remain low and change in the boardroom will be sluggish.

Key Quotes

“Very little turnover in the boardroom can be viewed as suspect by shareholders. Boards will be under more pressure to conduct assessments if there is little board refreshment.”

“Board members need to be more honest with one another. They tend to be generous with ‘box checking’ on certain skills. This becomes a problem if the company slips because the lack of skill sets is magnified.”

“When you have a board member leaving, make sure you don’t just replace that director’s skill set. Think about the future needs of the board and what skills will be most helpful in driving the company strategy forward.”

“Establish a culture of turnover from the beginning. If directors go in expecting to leave and have the understanding that it’s okay and not a reflection of their value, they will feel more comfortable stepping down.”

“There tends to not be as much thought put into who should be the compensation committee chair or the nominating/governance committee chair like there is for an audit chair, but there should be. And you want to make sure you have someone on your board who can be chair—it is a scary thought to have people who are on your board who can’t even chair a committee.”

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Equilar’s data and tools provide executives, boards and investors the information they need to prepare for shareholder meetings throughout the year. For more information, please visit our Shareholder Engagement portal.

For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at dmarcec@equilar.com. Belen Gomez contributed to this article.