April 13, 2017
Boards are becoming more transparent in response to shareholder engagement and activism, and a critical consideration is whether or not the expertise and skills represented by directors are aligned with company strategy and creating investor value. As a result, more and more company boards are disclosing composition in the form of board skills matrices.
According to Equilar data, 307 public companies in the U.S. and Canada disclosed a board skills matrix in their most recent proxy statements. A board skills matrix can come in many visual formats—whether graphic or tabular—but the basic function is to lay out how each member contributes to a critical function of the board. As an example, the Equifax proxy, filed on March 24, 2017 (p.16), utilized a board skills matrix that clearly denotes the various skills required to serve as a fiduciary of the company. (see below)
Finance was by far the most prevalent skill disclosed among companies who included a skills matrix, and 99% of boards had at least one director with finance experience. Out of 2,788 board seats included in the study, 75.0% were marked with finance experience. In the example above, every single one of Equifax’s 11 directors is qualified with financial background.
Companies are generally required to have a minimum of three committees: Audit, Compensation and Nominating and Governance. Therefore, it is no surprise that other dominant skills aside from finance are legal and governance, and HR and talent development—76.5% of boards had someone with legal and governance experience, while 55.7% had someone with HR and talent development experience.
Various forms of “leadership” experience also appeared frequently, with C-suite, board member and general corporate leadership disclosed as top skills. According to the skills matrices analyzed, 44.7% of directors had C-suite experience, while 33.9% of directors had previous or other board experience. International experience also often appeared—at 45% of companies—perhaps an indicator of a more globalized world.
While many of the aforementioned skills are evaluated by looking at past professional experience, some are more subjective and ambiguous, like “professional and personal ethics value” or “personal and professional integrity.” Additionally, some companies use the board skills matrix as an opportunity to showcase their dedication to social issues like diversity, which is an important element of board composition, but may not be universally agreed upon as a “skill.”
The board skills matrix serves as another tool for shareholders to evaluate the board, but because of its subjective nature has to be taken with a grain of salt. Shareholders are keenly focused on the board’s integral role in the company, from determining C-suite pay to guiding the company’s long-term success. Though board skill matrices aren’t required by any U.S. exchange or the TSX, we can expect that they will only be more prevalent in the future.
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For more information on Equilar research and data analysis, please contact Dan Marcec, Director of Content & Communications at firstname.lastname@example.org. Amy Jiang, research analyst, authored this post.