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Press release content from Business Wire. The AP news staff was not involved in its creation.

New Study on Board Governance of Largest Public Companies Highlights Growing Diversity and Demonstrates Need for Greater Representation in the Executive Suite

December 17, 2020 GMT

CHICAGO--(BUSINESS WIRE)--Dec 17, 2020--

America’s largest companies have taken great strides in increasing diversity on their boards of directors, according to a recent report by JamesDruryPartners, a firm focused on strengthening the corporate governance of boardrooms across America. Now it is time for businesses to create greater diversity in the executive suite to ensure that board directors possess the comprehensive business skills that provide the strongest oversight.

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James Drury III, founder, chairman and CEO of JamesDruryPartners (Photo: Business Wire)

The Weight of America’s Boards: Ranking America’s Largest Corporations by the Governance Capacity of Their Boards report has been published regularly since 2011. This year’s report analyzes 669 boards and 6,358 board directors across America’s largest corporations by taking the top 500 companies in revenue and the largest 500 in market capitalization as well as interviewing 30 of America’s most experienced directors regarding the personal attributes most highly correlated with director effectiveness. The comprehensive report appraises each board by its “business acumen,” an objective measure derived from the combined level of business accomplishment of each of the board’s directors, in their principal career fields.

“Diversity continues to be an important part of the conversation, and gender diversity in the boardroom now exceeds that of the executive suite,” said James Drury III, founder, chairman and CEO of JamesDruryPartners. “While this is a promising development, board directors believe strongly that diversity and strength of business acumen must go hand-in-hand, and we will need continued diversity in the C-Suite to ensure public companies have the balanced and experienced oversight needed to operate at the highest levels.”

According to the 2020 report, 39.1% of board seats analyzed in the report are held by members of gender and/or ethnic diversity, including:

  • 28% of seats are held by women
  • 16% of seats are held by directors of ethnic diversity

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The report finds a slight drop in both business acumen and financial expertise. Both of these findings present challenges. The report measures business acumen and director governance capacity by assessing the roles and responsibilities of each member on a 10-point scale – an active public company CEO is awarded 10 points – and averaging the total score by the number of directors. This year, the average director weight of the 669 companies analyzed was 6.59 – down from 6.62 in 2017. Ideally, a board with strong corporate governance capacity should have an average director weight of 7.0 or greater.

Only 43% of active Fortune 500 CEOs served on outside boards in comparison to 1990, when 70% served on outside boards. While there is not a strong reason to have a majority of broad-gauged CEOs on the board, by the same token, in an effort to achieve balance, an overreliance on adding directors of more narrowly specialized backgrounds can hinder a board’s capability to govern effectively. Such directors often lack the breadth of experience to oversee the company with a holistic approach. As a result, it tends to force the authority and weight of the board into the hands of those more broadly-experienced directors to make informed governance decisions, particularly in times of great crisis.

Another alarming deficiency is found in the limited number (13.5%) of board directors having CFO or accounting backgrounds, serving on the board audit committee as financial experts. Boards are required by the U.S. Securities and Exchange Commission to have an audit committee staffed by independent directors, with one who qualifies as a financial expert – a person who understands generally accepted accounting principles and has relevant experience. Only 60% of audit committee members qualify as designated financial experts, and of those, only 45% have CFO or public accounting experience – and thereby represent only 27% of the audit committee membership. As the first sign of corporate underperformance vulnerability is often detected within the audit committee, the apparent absence of truly disciplined financial perspective is highly concerning. According to Drury, CFOs rank second to CEOs in having the strategic mindset to be fully engaged in a company’s total business operations.

Among the boards with the highest corporate governance capacity, Procter & Gamble ranked #1. Joining them is Vulcan Materials, as the only other corporation to repeat this year among America’s Top 10.

Top Ten Boards with Highest Average Director Weight

 

 

Company

Industry

Number of
Directors

Average Director
Weight

1

Procter & Gamble

Consumer Goods

11

8.91

2

VICI Properties

Financials

6

8.83

3

Vulcan Materials

Basic Materials

9

8.78

4

ExxonMobil

Oil & Gas

9

8.67

5

Anadarko Petroleum

Oil & Gas

11

8.64

6

Cabot Oil & Gas

Oil & Gas

8

8.63

7

Kohl’s

Consumer Services

7

8.60

8

Chemours

Basic Materials

8

8.50

9

KLA

Industrials

10

8.40

10

Walgreens Boots

Consumer Services

10

8.20

Top Ten Boards with Highest Average Director Weight

 

 

Company

Industry

Number of
Directors

Average Director
Weight

1

Procter & Gamble

Consumer Goods

11

8.91

2

VICI Properties

Financials

6

8.83

3

Vulcan Materials

Basic Materials

9

8.78

4

ExxonMobil

Oil & Gas

9

8.67

5

Anadarko Petroleum

Oil & Gas

11

8.64

6

Cabot Oil & Gas

Oil & Gas

8

8.63

7

Kohl’s

Consumer Services

7

8.60

8

Chemours

Basic Materials

8

8.50

9

KLA

Industrials

10

8.40

10

Walgreens Boots

Consumer Services

10

8.20

“As the governance role of boards continues to be under scrutiny and criticism by shareholder activists, the capacity to govern well has never been more important,” said Drury.

The full report is available at https://jdrurypartners.com/news/the-weight-of-americas-boards-2020-edition/.

About JamesDruryPartners ( www.jdrurypartners.com )

Following an earlier career in management consulting and executive search, James Drury III founded JamesDruryPartners to focus on board advisory services, particularly with regard to a board’s important role in selecting new CEOs and board directors, advising some of the highest profile companies in the U.S. However, within a few years, recognizing that boards were experiencing a “brain drain” as CEOs began to reduce their outside board commitments, JamesDruryPartners changed course. The firm innovated new services focused on maintaining the strength of corporate boards. Foremost among them, BoardSelect: optimizing the matching process of America’s top executives with the boards that could most benefit from their service; while also providing a governance experience most beneficial to the companies they lead.

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CONTACT: Kristy Finch

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SOURCE: JamesDruryPartners

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PUB: 12/17/2020 09:06 AM/DISC: 12/17/2020 09:06 AM

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