Younger directors on S&P 500 boards show positive effect on companies’ performance 

Bringing younger directors into the boardroom does not only add value in terms of unique perspectives and improved innovation, but also impacts company performance

Bringing younger directors into the boardroom does not only add value in terms of unique perspectives and improved innovation, but also impacts company performance. Findings from CGLytics’ S&P 500 Boardroom Diversity Report reveal a clear and positive correlation between the number of younger board members and the Total Shareholder Return (TSR).

Despite our findings that show companies’ TSR was higher when age was lower on S&P 500 boards in 2018, the average age of board members still increased by six months that year.

With lawmakers and investors still calling for companies to appoint younger directors, the oldest demographics are still the most represented.

The following findings by CGLytics highlight how S&P 500 companies are progressing in terms of age diversification and tenure:

Average age on boards is 63.5 with three boards having directors over 90 years of age

Recent pressure on companies to appoint younger directors has not appeared to have an immediate impact with the average age of board members increasing by six months to 63.5 in 2018, and three companies having directors over the age of 90.

The majority of 2018 appointments were between the ages of 60 to 69 years old

While it has been suggested that having a diverse board with a variety of age demographics represented has a positive effect, in 2018 directors between the ages of 60 to 63 were the most appointed. While the proportion of new appointments in the younger age range of 30-49 decreased by 21%.

Average tenure increases to 10.7 but some sectors show promise

Despite calls for board refreshment, the average director tenure climbed higher in most industries, with the exception of Consumer Staples and Utilities. For Consumer Staples, average board tenure dropped from 9.5 years in 2017 to 9.3 years in 2018. The industry with the highest average board tenure was Utilities with an average of 14.9 years.

Getting ready for the coming season’s age debate

 

Boards need to be fully prepared for conversations around age diversification this upcoming proxy season and companies should be ready to provide evidence of their board refreshment efforts.

In addition to real-time governance risk intelligence and Pay for Performance analytics, CGLytics provides companies with a networking tool for discovering and connecting with top candidates for succession planning.

Access the full report.

Aniel Mahabier

CGLytics

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S&P 500 companies are listening: One third of new board appointments in 2018 were women

Gender diversification on boards was a prominent issue in 2018 and shareholders had never been more explicit in their expectations of companies.

Gender diversification on boards was a prominent issue in 2018 and shareholders had never been more explicit in their expectations of companies. The CGLytics Review of Diversity in the Boardroom of S&P 500 Companies reveals the progress made by companies to improve female board representation and discusses new ways for identifying top candidates using new methods and tools.

Through research on the appointments and departures of S&P 500 company directors between 2017 and 2018, we can see evidence that companies are actively trying to improve gender diversity on boards. This is likely the result of investors pushing for greater female representation, along with media and legislators.

While overall female representation only grew by 1%, the following three data points demonstrate how S&P 500 companies are progressing:

1. One third of new board appointments in 2018 were women

One of the most encouraging changes we saw in 2018 was the increase in the percentage of new appointments that were women. 33% of new appointments were female, up 25% from the previous year. And of the 60 new appointments under the age of 50, more than half of these were women, demonstrating that companies are looking at younger female leaders when making their selection.

2. Telecommunications Services have the highest representation of women on boards

Almost all industries saw an improvement in gender diversity of their boards between 2017 and 2018. The financial sector showed the greatest improvement, with female appointments up by 2 percent. While Telecommunication Services had a three-percent decrease in female representation in 2018, the industry still shows the largest representation of women on boards, at 28%.

One of the most encouraging changes we saw in 2018 was the increase in the percentage of new appointments that were women. 33% of new appointments were female, up 25% from the previous year.

3. 27 female appointments needed to reach gender diversity goals of 30% and 1,431 female appointees to reach full gender parity

With female representation reaching 24%, we investigated how many more appointments are needed in order to hit 30% and 50% targets. We discovered that if the net is cast wider than the current 1,329 women sitting on S&P 500 boards, then an additional 1,227 female candidates are available (drawing from S&P Midcap 400 and S&P SmallCap 600 boards).

Getting ready for the coming season’s gender debate

Boards need to be fully prepared for conversations around gender diversification this upcoming proxy season and companies should be ready to provide evidence of their efforts to improve female representations.

In addition to real-time governance risk intelligence and Pay for Performance analytics, CGLytics provides companies with a networking tool for discovering and connecting with top candidates for succession planning.

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CGLytics

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Action needed despite third of new S&P 500 board appointments being women

Gender diversification on boards was a prominent issue last year, and shareholders have never been more explicit in their expectations of companies, writes Aniel Mahabier

Gender diversification on boards was a prominent issue in 2018 and shareholders had never been more explicit in their expectations of companies.

A CGLytics report on diversity in the boardrooms of S&P 500 companies reveals that some progress has been made on an issue that was very prominent in 2018. Companies have improved female board representation – but at a much slower rate than is needed to meet targets set by some proxy advisers and new legislation.

In the past 12 months, the emphasis on gender diversity in the boardroom has never been greater. Demands from not only the media but also shareholders, investors, proxy advisers and governing bodies, as well as campaigns such as the Fearless Girl, have made all companies, regardless of industry, sit up and take notice.

There are, of course, many benefits to improving boardroom gender diversity that go far beyond fresh perspectives and improved profitability. But in order to build an effective board that meets current diversity standards, nomination and governance committees need to find new ways to recruit the right – and best – female candidates to fill their board.

Appointments and departures of S&P 500 company directors between 2017 and 2018 are evidence that companies are actively trying to improve gender diversity on boards. While overall female representation grew by only 1 percentage point, there are some data points that demonstrate how S&P 500 companies are progressing.

1. One third of new board appointments in 2018 were women 

One of the most encouraging changes in 2018 was the increase in the percentage of female appointments to boards. Thirty-three percent of new appointments were female, up from 25 percent from the previous year. Of the 60 new appointments under the age of 50, more than half were women, demonstrating that companies are recruiting younger female leaders. In tandem with gender, diversity of age should also not be overlooked as our findings reveal a positive correlation between the number of younger directors on S&P 500 boards and one-year company total shareholder return

2. Telecommunications services have the highest representation of women on boards

Almost all industries saw an improvement in gender diversity of their boards between 2017 and 2018. The financial sector showed the greatest improvement, with female appointments up by 2 percentage points. While telecommunication services saw a 3 percentage-point fall in female representation in 2018, the industry still shows the largest representation of women on boards, at 28 percent.

One of the most encouraging changes we saw in 2018 was the increase in the percentage of new appointments that were women. 33% of new appointments were female, up 25% from the previous year.

3. Representation of female directors is growing, but radical action is required to hit targets

With female board representation reaching 24 percent (up just 1 percentage point from 2017), it’s critical to understand how many more appointments are needed to reach gender diversity goals of 30 percent and 50 percent: currently, 327 female appointments are needed to reach 30 percent and 1,431 to reach full gender parity. But to find suitable candidates to fill S&P 500 boards, companies are going to need to extend their network or look further afield.

If a wider net is cast – for instance, looking at female directors on S&P MidCap 400 and S&P SmallCap boards, as well as C-level executives – then in the US alone 2,577 candidates are available. Beyond the US market, the CGLytics database shows more than 20,000 professional and experienced female candidates.

3. 27 female appointments needed to reach gender diversity goals of 30% and 1,431 female appointees to reach full gender parity

With female representation reaching 24%, we investigated how many more appointments are needed in order to hit 30% and 50% targets. We discovered that if the net is cast wider than the current 1,329 women sitting on S&P 500 boards, then an additional 1,227 female candidates are available (drawing from S&P Midcap 400 and S&P SmallCap 600 boards).

Getting ready for the coming season’s gender debate

Boards need to be fully prepared for conversations around gender diversification this upcoming proxy season and companies should be ready to provide evidence of their efforts to improve female representations.

In addition to real-time governance risk intelligence and Pay for Performance analytics, CGLytics provides companies with a networking tool for discovering and connecting with top candidates for succession planning.

Aniel Mahabier

CGLytics

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What’s New for the 2019 Proxy Season?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices.

During the 2018 proxy season, shareholders engaged actively in governance matters. The CGLytics FTSE 100 Proxy Review revealed shareholders to be particularly interested in director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practice.  So what’s in store for 2019?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices. They should prepare for early engagement with investors, who have expanded their ESG capabilities with access to best-in-class analytics to aid engagement and voting.

CEO Pay, Board Refreshment and Gender Diversity will continue to dominate

We envisage the following themes will dominate 2019 across Europe:

Proactive shareholder engagement 

To obtain early shareholder buy-in during the proxy season. Investors will favour an ongoing positive dialogue in preference to a reaction to a negative vote.

Transparency will endure as a central theme 

Boards should be prepared to engage openly on their board composition, say-on-pay proposals and governance decisions.

Board refreshment, gender diversity and board composition 

These will be key governance matters as investors seek to favour board strategy and composition that ties to long-term company performance.

CEO Pay 

Pay will be scrutinised – compensation policies and practices must be fully transparent and reflect, and support, business strategy and promote long-term success.

CEO succession planning 

Chairs and nomination and governance committees will be required to plan for CEO succession to mitigate business continuity risk.

Environmental, Social and Governance (ESG) 

ESG will continue to gain momentum as investors continue to become more information savvy and continue to evaluate companies’ progress on their environmental, social and governance practices.

Boards must be equally, if not better, informed as shareholders in order to engage adequately and constructively

Getting ready for the coming season

Boards need to be fully prepared for the upcoming proxy season. They must be equally, if not better, informed as shareholders in order to engage adequately and constructively, to be certain to avoid any reputational risks. Having access to the same intelligence as proxy advisors and investors is fundamental to proxy season preparedness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enable good governance.

In preparation for the 2019 proxy season, CGLytics released its third annual FTSE 100 Proxy Season report. This series of articles summarise some of the key findings. Access the full insights and statistics by downloading the report.

Aniel Mahabier

CGLytics

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Be prepared: Learnings from the UK 2018 proxy season

The UK is at the forefront of shareholder concern of good corporate governance practices. In a climate of increasing proactive shareholder engagement, the CGLytics FTSE 100 2018 proxy season review evaluates underlying trends to provide unique insights for being prepared for the forthcoming season.

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During the 2018 proxy season, shareholders showed increasing interest in key governance matters, including director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practices. Transparency emerged as a consistent concern.

We saw unprecedented dissent from investors on director re-elections. The number of resolutions opposing individual director re-elections rose from 38 in 2017 to 80 in 2018. The reason for the increase was due to a general concern about directors becoming ‘overboarded’ and unable to fulfil their duties. Investors were also looking closely if boards possessed the right composition including skills, diversity, and gender to support long-term growth plans.

2018 Proxy Season Highlights

Say on Pay

The GCLytics report explained that CEO pay is a real concern among investors who repeatedly voted down remuneration reports and questioned short-term remuneration plans.

Pay and performance

During the year, shareholders strongly urged companies to bring pay in line with performance and voted strongly against remuneration-related resolutions if it was seen as misaligned.

33% of companies have a pay for performance misalignment

The FTSE 100 CEO compensation landscape is evolving, with a growing emphasis on long-term incentives. However, the CGLytics study conducted on pay for performance alignment shows a material misalignment between pay and performance within many FTSE 100 companies during 2017:

  • 33% of companies have a pay for performance misalignment
  • 34% of companies display a strong alignment
  • 32% of the companies show a conservative pay practice for the performance generated, compared to other FTSE 100 companies.

 

With the 2019 proxy season fast approaching, boards need to be fully prepared to engage with shareholders. Having the same information as proxy advisors and investors is fundamental to proxy season readiness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enables good governance.

In preparation for the 2019 proxy season, CGLytics released its third annual FTSE 100 Proxy Season report. This series of articles summarise some of the key findings. Access the full insights and statistics by downloading the report.

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What is ESG?

ESG (Environmental, social and governance) criteria are of increasing interest to companies, their investors and other stakeholders. With growing concern about he ethical status of quoted companies, these standards are the central factors that measure the ethical impact and sustainability of investment in a company. ESG factors cover a wide spectrum of issues that have traditionally been excluded from financial analysis:

Environmental:
  • Climate change
  • Resource depletion
  • Waste and pollution
  • Deforestation
Social::
  • Working conditions, including use of child labour
  • Local communities
  • Conflict
  • Health and safety
  • Employee relations and diversity
Environmental:
  • Executive pay
  • Corruption
  • Political affiliations and donations
  • Board composition, diversity and structure
  • Tax strategy

As global interest in ethical investment grows, these factors have increasing financial relevance. There are many dedicated ESG professionals and many more who recognise the relevance of ESG information to gain a more meaningful understanding of corporate policy management and strategy.

ESG investing identifies and quantifies risks that are overlooked by traditional financial metrics, such as a company’s impact on the environment, its use of child labour or employee diversity. It is also concerned with executive pay, and how this relates to company performance, accounting and tax policies. Companies with sound policies are managed better and are more sustainable.

Today, ESG investing accounts for around a quarter of all professionally managed funds around the globe. Although institutional investors have a duty to maximise shareholder value, there is growing awareness that ESG ratings are an indicator of a company’s long-term performance, including return and risk, as well as its ethical standing.

One of the major barriers to successful investment had been a lack of quality, impartial data, but that’s changing rapidly.

Learn How to Incorporate ESG Factors Into Your 2021 Executive Remuneration Policy

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What is Corporate Governance?

Corporate governance is the system of rules, procedures and processes by which a company is controlled and directed. In practice, governance is concerned with balancing the combined interests of a company’s stakeholders, including shareholders, management, staff, customers, suppliers and the community in which it operates.

Corporate governance is the system of rules, procedures and processes by which a company is controlled and directed. In practice, governance is concerned with balancing the combined interests of a company’s stakeholders, including shareholders, management, staff, customers, suppliers and the community in which it operates.

The board of directors is pivotal in influencing and implementing good governance. The board appoints corporate officers and makes important decisions, such as executive compensation and dividend policy. Proxy advisors and shareholders are important stakeholders, which can have major implications for equity valuation.

How does CGLytics help companies achieve good governance?

CGLytics provides the necessary tools that are central to good governance. Our services help promote transparency in companies’ corporate governance practices and promote informed dialogue between a company, its investors and other relevant stakeholders.

We provide access to high-quality corporate governance data, analytics and actionable insight through a single access. Our market and data insight helps companies manage reputational risk and identify issues that are of potential concern to shareholders. We give investors access to granular data, unique information and screening tools so they can make well-informed decisions.

Why Corporate Governance Matters

Good corporate governance implements a transparent set of rules to ensure that shareholders, directors and officers have aligned incentives. But good governance can also be seen as a mark of good corporate citizenship and ethical behaviour.

With its many stakeholders, corporate governance must balance the need for short-term earnings with the strategic objectives of the company. In practice, good governance must encompass all areas of management and become part of a company’s DNA.

Although shareholders do not have a right to proxy access, some companies have implemented it on a voluntary basis, for example to help ensure the right mix of skills in the boardroom.

A strong board is fundamental to good governance. A good board will comprise a diverse group of multi-talented people who combine insight and good judgement to ensure that the company implements good governance and maintains its market share. A successful board must be well informed and decisive.

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