board composition
2018 U.S. Technology Spencer Stuart Board Index
2018 u.s. technology spencer stuart board index 1 Aboutboard composition Spencer Stuart board services
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© 2018 Spencer Stuart. All rights reserved. 2018For information u.s. technology about copying, spencer distributing stuart and board displaying index this work, contact: [email protected]. 2 Contents
1 Introduction 4 Board Composition 4 Board Size 5 Age of Directors 5 Female Representation 5 New Independent Directors 6 Director Backgrounds 6 Chair/CEO Split 6 Lead and Presiding Directors 7 Average Tenure 8 Board Organization and Process 8 Number of Board Meetings 9 Board Elections 9 Mandatory Retirement 9 Board Evaluations 10 Board Committees 10 Audit Committees 11 Director Compensation 11 Total Director Compensation 12 Percentage of Compensation by Categories 13 Board Retainers 13 Meeting Fees 13 Boards Leadership Compensation 14 Audit Committee Compensation 14 Equity Compensation 15 Comparative Board Data Introduction
New Research Finds Boards Seeking Younger, First-Time Directors As disruptive forces such as digital transformation, cybersecurity and shareholder activism have altered the business landscape, tech boards have sought out a broad array of voices to provide a wider range of perspectives in the boardroom.
In a new area of research this year, Spencer Stuart found that many of 136 the top 200 U.S. technology companies are refreshing their boards by bringing in a slate of younger, first-time directors: exactly half (68) of the New independent 136 new independent board members are serving on an outside publicly directors traded company board for the first time. The average age for these new independent directors is 56; by comparison, the current average age for tech boards is 62.
When it comes to the directors’ professional experience, though, top leaders still make up the largest percentage of new independent directors: We found that 36% of the new independent directors on tech boards are active and retired CEOs (and chairs, presidents and COOs). Other executives — including division or subsidiary presidents, or line and functional leaders — make up 27% of new independent tech board directors, the same percentage as executives with financial backgrounds (such as CFOs, treasurers, bankers and investment managers). % We’ve also begun looking at tech board directors’ industry backgrounds for the first time. Unsurprisingly for the tech industry, 52% of new outside 46 directors have experience in high tech or telecommunications. The next highest percentage of new directors — just 11% — have private equity or Companies adding investment management backgrounds. new directors — up from 42% in 2017 We’ve also taken a deeper dive into diversity, and we found that 27 (20%) of new independent directors are minorities. We also learned that women have generally made progress on tech boards over the years: the percentage of new independent board directors who are women is 37%, up from 23% three years ago but a slight decline from last year, when 38% of new independent board directors were female. Forty-seven percent of tech companies added at least one new female independent director, versus 48% in 2017.
2018 u.s. technology spencer stuart board index 1 introduction
While the class of new female independent directors declined slightly, the overall percentage of female tech board directors increased from 17% in 2017 to 18% in 2018. The percentage of tech boards with at least one female director also rose, from 83% in 2017 to 85% in 2018. As in past years, the S&P 500 has greater gender diversity than tech boards, with women making up 24% of directors on S&P boards.
% There is, however, a new element to be considered here: California 37 recently passed a law mandating that publicly traded companies must have at least one woman on the board by the end of 2019. (That number New female tech increases to two or three women by the end of 2021, depending on the board directors in 2018 — size of the board.) We will keep a close eye on California boards — and down from 38% in 2017 especially those in Silicon Valley — to see the effect of this ruling on gender diversity going forward.
Our research also found that tech boards tend to skew younger than S&P 500 boards, as the average age of technology company directors (62) is a year younger than the S&P 500 average (63). Also, 35% of tech boards have an average age of 59 or younger, compared with only 16% of S&P 500 boards.
Looking at board refreshment, the percentage of companies adding new independent directors grew from 42% in 2017 to 46% in 2018. Average director tenure has remained largely unchanged over the past few years, and the percentage of boards reporting mandatory retirement ages % dropped from 38% in 2017 to 33% the following year. (By comparison, 35 71% of S&P 500 boards report a mandatory retirement age.) Tech boards with These are just some of the trends in board composition, governance an average age of practices and director compensation that the 2018 U.S. Technology 59 or younger Spencer Stuart Board Index examines for the 200 top technology companies in the United States. Based on 2017 revenues, the companies in this index range in size from roughly $290 million to more than $230 billion, and they represent a broad swath of technology companies, including hardware manufacturers, software developers, network services and internet retail companies.
2018 u.s. technology spencer stuart board index 2 introduction
Highlights from the 2018 U.S. Technology Spencer Stuart Board Index »» Technology company boards range in size from four to 14 members, and they average 8.7 members. »» Thirty-seven percent of new independent tech board directors are women, down from 38% last year but up from 29% in 2016. The percentage of companies who added a new female independent director also dropped one percentage point from 2017 to 47% in 2018. Nevertheless, the percentage of boards with at least one woman director increased from 83% in 2017 to 85% in 2018, and the percentage of women among all directors increased by one 8.7 percentage point to 18% in 2018. »» Eighty-two percent of tech board directors are independent, compared Average number of with 85% of S&P 500 directors. members on tech boards »» Forty-six percent of tech companies added a new director in the 2018 proxy year, up from 42% in 2017. In total, 91 companies added 136 directors, compared with 2017, when 84 companies added 121 new directors. »» Of the 200 technology boards in our index, 72% separate the board chair and CEO roles (the same as 2017), compared with 50% of S&P 500 boards. Forty-nine percent of board chairs are independent. »» The average tenure for technology company board members is 8.1 years, down from 8.7 years in 2017 and identical to the S&P 500 average. »» Directors are elected annually on 64% of technology company boards, up one percentage point from in 2017. Ninety-two percent of % S&P 500 companies hold annual director elections. »» Fewer technology company boards report a mandatory retirement 33 age, 33% in 2018 versus 38% in 2017. By comparison, 71% of S&P 500 boards report a mandatory retirement age for directors. Among the Tech boards that report a technology companies that mandate director retirement, the average mandatory retirement age — age for stepping down is 74. down from 38% in 2017 »» Technology company directors receive average total compensation of $288,830, up 3% from 2017 ($281,597). Stock awards represent 64% of total per-director compensation for technology company directors, and cash fees represent 31%. Just 4% of director compensation comes in the form of stock options.
Editor’s Note The 2018 U.S. Technology Spencer Stuart Board Index examines 200 public technology companies in the United States, sorted into four groups based on revenue. The companies included in the index must have been publicly traded on one of the major stock exchanges (NYSE or NASDAQ). All data were culled from each company’s DEF14A proxy statement most recently filed with the U.S. Securities and Exchange Commission between July 1, 2017, and July 1, 2018, except where noted.
2018 u.s. technology spencer stuart board index 3 Board Composition
2018 S Average tenure Female representation 1 3 6 new independent % 8.1 directors at Representation years 1of women8 among all tech at technology company tech company directors in 2018 and S&P 500 boards 91 vs. % in 2017 companies 17 Tech boards with at least Separation of chair and CEO roles one female director 2018 85% % 2017 83% 72 Tech boards with at least of tech boards or one new independent female director % 2018 47% 50 Separate Combined % of S&P 500 boards 2017 48
Tech boards average 8.7 members »» The average technology company board has 8.7 members, roughly the same as last year. By comparison, S&P 500 boards average 10.8 members. »» Seventy percent of tech boards have nine or fewer members, up from 65% last year; only 25% of S&P 500 boards have fewer than 10 members. »» Technology boards have as few as four and as many as 14 members, while S&P 500 boards range in size from five to 18. The highest percentage (30%) of tech boards have eight members. »» Eighty-two percent of technology board directors are independent, compared with 85% of S&P 500 directors.
2018 u.s. technology spencer stuart board index 4 board composition
Tech 200 Board Size Distribution*
2018 2017 4 to 7 22% 24% 8 to 9 48% 42% 10 to 11 26% 28% 12 to 14 4% 8% * Figures may not total 100% due to rounding.
Average Age of Independent Directors Remains the Same »» The average age of independent directors on technology company boards is 62, remaining constant over the past several years. The average age of directors on S&P 500 boards is 63, up two years from 2017. »» The average age of new independent directors is 56. »» Thirty-five percent of technology boards have an average age of 59 or younger, up from 28% in 2017. That’s more than double the 16% of S&P 500 boards that have an average age of 59 or below.
85% of Boards Have at Least One Female Director, up from 83% »» The percentage of technology company boards with at least one female director rose from 83% in 2017 to 85% in 2018. This represents a year-over-year increase of only 2%, but builds on an 18% increase since 2014, when 72% of tech boards had at least one women director. Still, technology boards significantly trail the S&P 500 in female representation, as 99% of S&P 500 boards have at least one female director. »» Women represent 18% of the total number of directors on technology boards, up from 17% in 2017. By comparison, 24% of S&P 500 directors are women. »» Larger companies are more likely to have women on their boards than smaller companies.
Boards with Female Directors
Technology 200 Tech 200 S&P 500 >$5B $1B to $5B $500M to $1B < $500M 2018 85% 99% 100% 92% 68% 68% 2017 83% 99% 85% 80% 86% 80%
10% rise in Tech Companies Adding New Independent Directors »» Forty-six percent of the technology companies in our index added a new independent director in 2018, up from 42% in 2017. In total, 91 companies added 136 independent directors. »» Thirty-seven percent of the new directors are women, down from 38% last year. While this is a slight year-to-year decrease, the longer-term trend is toward more female new directors — just 23% of new directors were women in 2015. Forty-seven percent of technology boards that welcomed a new independent director added at least one woman, down from 48% in 2017.
2018 u.s. technology spencer stuart board index 5 board composition
More than one-third of New Directors are Current or Former CEOs »» Thirty-six percent of new outside directors are current or former CEOs, board chairs, presidents or COOs. Twenty-seven percent of new directors are other corporate executives, such as division and subsidiary presidents, and line and functional leaders, or executives with financial backgrounds. »» The majority of new outside directors (52%) have technology or telecommunications backgrounds, while 11% of directors have backgrounds in private equity or investment management. »» Exactly half (68 out of 136) of new directors are first-time public company board members. »» Twenty percent of new board directors are minorities. Broken down further, 13% are Asian, 7% are African-American and 1% are Hispanic.
MAJORITY of Tech Boards SeparatE the Chair and CEO roles »» Of the 200 technology boards in our index, 144 (72%) separate the chair and CEO roles, the same percentage as 2017. Half of S&P 500 boards split the roles. »» Among the 200 tech boards, just under half, 97 (49%), have an independent chair.
Percentage of Boards Separating the Chair and CEO Roles
Technology 200 Tech 200 S&P 500 >$5B $1B to $5B $500M to $1B < $500M 2018 72% 50% 67% 72% 74% 79% 2017 72% 51% 79% 70% 65% 85%
Just over half of boards have a Lead or Presiding Director »» Forty-nine percent of technology companies in our index have a lead or presiding director, compared with 47% in 2017. By comparison, 80% of S&P 500 companies have identified a lead or presiding director. »» Seventeen boards do not have an independent board leadership role (neither an independent chair nor lead/presiding director).
Companies with a Lead or Presiding Director
Technology 200 Tech 200 S&P 500 >$5B $1B to $5B $500M to $1B < $500M 2018 49% 80% 79% 49% 30% 37% 2017 47% 84% 54% 43% 53% 35%
2018 u.s. technology spencer stuart board index 6 board composition
Average Length of Tenure Dropped to just over 8 years »» The tenure for technology company board members averages 8.1 years (down from 8.7 years in 2017), the same length as the S&P 500 average. »» The percentage of tech company directors with fewer than five years on the board dropped from 46% in 2017 to 30% in 2018. More than half (51%) of tech board directors have served six to 10 years.
Average Tenure (in Years)
Technology 200 Tech 200 S&P 500 >$5B $1B to $5B $500M to $1B < $500M 2018 8.1 8.1 7.7 8.2 8.6 7.3 2017 8.7 8.2 8.1 8.9 9.0 8.7
Average Board Tenure (by Group)*
5 years or less 6 to 10 years 11 to 15 years More than 15 years 2018 30% 51% 17% 3% 2017 46% 22% 17% 16% * Figures may not total 100% due to rounding.
2018 u.s. technology spencer stuart board index 7 Board Organization and Process