January 28, 2016
In late 2009, the SEC passed a rule requiring companies to disclose experience, qualifications, attributes or skills for each director on the board or up for nomination, and this information has become highly valued among shareholders. Companies choose to present this information in a variety of ways, and more and more, attention is being drawn to board skills matrices, which clearly and visually categorize essential skills and values a company seeks in a board member or candidate.
These matrices provide an opportunity for companies to express to their shareholders not only who they think is qualified to be a board member but also why. Since every company has its own array of qualities deemed to be the most important to its operations, clear board skills disclosures often reveal strategic insight into the company, and can assist in warding off increasing shareholder activism concerns around board member qualifications.
“Investors are increasingly focused on whether or not the board has the right skill set and industry expertise needed to oversee the company’s short and long-term strategy,” said Lillian Tsu, a partner with Hogan Lovells, who contributed commentary for Equilar’s annual Compensation & Governance Outlook report. "Companies are being asked to provide more disclosure explaining the qualifications for incumbent directors and how they are ensuring that the board has the right mix of skills, [which] has led to more rigorous board evaluations and director recruitment efforts.”
Despite the fact that companies and shareholders alike view board skills matrices as useful, only 7% of the S&P 500 and 6% of the TSX disclosed them in their 2015 proxy statements, according to Equilar.
Of those companies who utilized skills matrices in their proxy statements, we analyzed the most frequently cited qualities, finding that finance, the company’s industry and leadership experience are among the most sought-after skills. These statistics show that while the introduction of the board matrices represents progress towards greater transparency between companies and their shareholders, the qualities most often included are general, and some appear to overlap one another.
Board matrices represent a shift toward greater understanding of board members’ contributions, but they remain few and far between. And while they provide insight for into the qualities of current and proposed board members, they are simply one portion of the full package in addressing board assessment and diversity issues such as age, tenure and gender that continue to come into question among activists. The degree to which these disclosures become more prevalent and more detailed will ultimately determine their broader value to shareholders.
The data in this report is powered by Equilar’s BoardEdge, which not only includes information on 135,000 directors and executives qualified for board service, but also more than a dozen categories about each board member’s background and leadership experience, but also features a network tool clearly displaying how board members are connected to each other.
For more information on BoardEdge, or to request a demo, click here.
For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at firstname.lastname@example.org.