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Board Composition: Board Size, Structure and Refreshment Policies

2017 Spencer Stuart U.S. Board Index

2017 Snapshot

Board Size and Independence Remain Stable

  • Boards range in size from five to 18 members and average 10.8 members. The most common board size is 11, with 22% of S&P 500 boards being that size.
  • 72% of S&P 500 boards have nine to 12 members today, nearly the same as last year. The number of smaller boards — those with eight or fewer members — continues to decline. Just 10% of boards fall within this range, compared with 12% last year.
  • By contrast, the number of larger boards appears to be ticking up; 18% have 13 or more members, compared with 16% last year and 14% five years ago. The majority of these larger boards have 13 or 14 members.
  • The two largest boards have 18 members apiece, while the two smallest boards have five directors each.

Board Size

  • Independent directors make up 85% of all S&P 500 board members, the same as last year. In 2007, 80% of directors were independent. The ratio of independent directors to non-independent directors on S&P 500 boards is 5.7 to 1, with boards averaging 9.2 independent directors and 1.6 non-independent directors.
  • As boards have become more independent over time, the CEO is likely to be the only non-independent director on most boards; this is the case for 60% of S&P 500 boards in 2017, compared with 43% a decade ago.

Annual Director Elections Become the Standard

  • Directors stand for election by shareholders on an annual basis on 92% of boards, unchanged from last year. The remaining boards have three-year terms.
  • In line with governance best practices, many boards have implemented declassified board structures in recent years; 62% of boards in 2007 and 83% in 2012 had annual director elections.
  • We also have seen an increase in boards establishing policies that require directors to offer their resignations if they fail to receive a majority vote from shareholders; 89% of boards have such policies today, up from 84% in 2012. While these policies have become widespread, boards retain the discretion to accept or decline a director’s resignation.

Resignation Policies for Changing Director Status Are Prevalent

  • Consistent with the past several years, 86% of S&P 500 boards have a provision in their corporate governance guidelines requiring directors who experience a change in employment status or significant change in job responsibilities to notify the chair and/or the nominating committee and offer their resignation from the board. Typically, the chair or nominating committee has the discretion to accept or decline the resignation.
  • 36% of boards report having a policy requiring the CEO to submit his or her resignation from the board when the CEO’s employment with the company ends. In all cases, however, boards retain the discretion to accept or decline the resignation. This provision is largely unchanged from 2012, when 34% of boards had such a policy.

Most Boards Restrict Directors’ Additional Board Activity

  • Limitations on directors’ additional board activity have become more common, and more restrictive about the number of additional boards on which a director may serve. Today, more than three-quarters of S&P 500 boards (77%) have established some limit on their directors’ ability to accept other corporate directorships, an increase from 55% in 2007.
  • 64% of boards set a numerical limit for other board service applying to all directors; of those, 4% cap additional directorships at two, 36% at three, 49% at four, and 11% at five or six. Five years ago, 24% of boards with limits capped corporate directorships at five or six.
  • 41% of S&P 500 boards restrict the number of other audit committees on which their members may serve; 99% of these boards allow audit committee members to serve on up to two other audit committees. The other 1% allow audit committee members to serve on up to three other audit committees.
  • 24% of boards set restrictions for directors who are public company CEOs or are otherwise fully employed; most often, these directors are limited to two other public company boards. No board allows directors who are employed executives to serve on more than three additional boards.
  • Only 22% of S&P 500 boards set a specific limit in their corporate governance guidelines on the CEO’s outside board service; 65% of those boards limit CEOs to two outside boards, and 32% set the limit at one outside board. One board does not allow the company CEO to serve on any outside corporate boards, and two boards allow their CEO to serve on three outside corporate boards.
  • Among the 177 boards that do not specify a limit on other corporate directorships, 90% require directors to notify the chair prior to accepting an invitation to join another company board and/or encourage directors to “reasonably limit” their other board service.

The Average Independent Director Serves on Two Public Corporate Boards

  • S&P 500 independent directors serve on 2.1 public corporate boards on average, which has been consistent for five years.
  • 64% of independent directors have two or more public board affiliations; 11% have four or more. Eight directors (less than 1%) serve on six boards.

Number of Corporate Board Affiliations for Independent Directors

Number of Corporate Board Affiliations

Video: Board composition highlights


Small Decline in Average Tenure of Independent Directors

  • The average tenure of independent directors on S&P 500 boards is 8.2 years, a slight decrease from 8.6 five years ago. The median tenure has declined as well in that time, from 8.4 to 8.0. When non-independent directors (such as the CEO) are included, the average tenure is 8.7.
  • On the majority of boards, 62%, the average tenure of independent directors ranges from six to 10 years.
  • 19% of boards have an average tenure of 11 or more years, compared with 22% in 2012. 19% have an average tenure of five years or less, up from 14% five years ago.
  • The longest average board tenure is 19 years, and the longest-tenured independent director has served 43 years.
  • 36% of independent directors have served on their boards for five years or less, 25% have served for 6-10 years, and 21% for 11-15 years. 18% of independent directors have served on their boards for 16 years or more.

Average Board Tenure

Average Board Tenure

Director Term Limits Remain Rare Tool for Promoting Turnover

  • 24 S&P 500 boards, 5%, specify a term limit for non-executive directors, a modest increase from last year when 19 boards (4%) had director term limits. 65% of boards explicitly state in their corporate governance guidelines that they do not have term limits, and 30% do not mention term limits at all.
  • Of the 24 boards with a specific term limit, four cap director tenure at 20 years, one at 18 years, 12 at 15 years, five at 12 years, two at 10 years.
  • Rather than set term limits or a mandatory retirement age, some boards report that they consider whether individual directors should be re-nominated during the evaluation process.

Boards with Term Limits*

Boards with Term Limits

*Data correct as of our May 19, 2017, cut-off date.

For the First Time, More Than Half of Boards with Mandatory Retirement Set It at 73 or Older

  • About three-quarters (73%) of S&P 500 boards report having a mandatory retirement age for directors, which has remained consistent for more than five years. 11% report that they do not have a mandatory retirement age, and 16% do not discuss mandatory retirement in their corporate governance guidelines.
  • Mandatory retirement ages have been increasing, with nearly all companies that have them (96%) setting mandatory retirement at 72 or older, compared with 67% 10 years ago.
  • Among boards with a retirement age, 42% set it at 75 or older, an increase from 39% last year and 11% in 2007. Four boards have a retirement age of 80.
  • The most common mandatory retirement age is 72, set by 44% of S&P 500 boards with a retirement age.

Mandatory Retirement Age

Mandatory Retirement Age

N = Boards that have set a mandatory retirement age: 358 for 2017, 354 for 2012, 376 for 2007.