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 At Spencer Stuart, we know how much leadership matters. We are trusted by organizations around the world to help them make the senior-level leadership decisions that have a lasting impact on their enterprises. Through our executive search, board and leadership advisory services, we help build and enhance high-performing teams for select clients ranging from major multinationals to emerging companies to nonprofit institutions. Privately held since 1956, we focus on delivering knowledge, insight and results through the collabo- rative efforts of a team of experts — now spanning 57 offices, 30 countries and more than 50 practice specialties. Boards and leaders consistently turn to Spencer Stuart to help address their evolving lead- ership needs in areas such as senior-level executive search, board recruitment, board effectiveness, succession planning, in-depth senior management assessment and many other facets of organizational effectiveness. For more than 30 years, our Board Practice has helped boards around the world identify and recruit independent directors and provided advice to board chairs, CEOs and nominating committees on important governance issues. We serve a range of organizations across geographies and scale, from leading multinationals to smaller organizations. In the past year alone, we conducted more than 600 director searches worldwide, and in North America one-third of those assignments were for compa- nies with revenues under $1 billion. Our global team of board experts works together to ensure that our clients have unrivaled access to the best existing and potential director talent, and regularly assists boards in increasing the diversity of their composition. We have helped place women in more than 1,800 board director roles and re- cruited more than 600 diversity executives around the world. In addition to our work with clients, Spencer Stuart has long played an active role in corporate governance by exploring — both on our own and with other prestigious institutions — key concerns of boards and innovative solutions to the challenges facing them. Publishing the U.S. Spencer Stuart Board Index (SSBI), now in its 33rd edition, is just one of our many ongoing efforts. Each year, we sponsor and participate in several acclaimed director education programs, including: » Next-Gen Board Leaders (NGBL), an initiative designed to foster a community of current and aspiring directors to spark discussion around the challenges, opportunities and contributions of a younger generation in today’s boardrooms » The Global Institutes, sponsored by the WomenCorporateDirectors (WCD) Foundation » The Corporate Governance Conference at Northwestern University’s Kellogg School of Management » The New Directors Program, a unique two-year development program designed to provide first-time, non-executive directors with an exclusive forum for peer dialogue on key issues and “unwritten rules” of corporate boards, produced in partnership with the Boston Consulting Group, Frederick W. 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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.