What Are Directors Thinking?

Board members are less concerned with the influence of hedge funds, than they are with institutional investors, and think they do a "very effective" job standing up to management, says a new survey.

Most directors seem to be limiting the number of boards they serve on, lately. According to a new study conducted by PricewaterhouseCoopers LLP and Corporate Board Member magazine, nearly half of directors (47 percent) sit on only one public company board. Furthermore, 78 percent sit on just one or two boards.

Surprisingly, although many governance experts have been calling on directors to not over-extend themselves, Catherine Bromilow, a partner with PricewaterhouseCoopers and U.S. leader of its Corporate Governance Group, questions whether directors are not involved in enough boards. In a press release accompanying the survey results, she asserts, “This trend poses a two-edged sword. In the past, we were concerned directors were serving on too many boards. Now the question becomes whether there is sufficient cross-fertilization to leverage knowledge and learn—especially if directors are sitting on just one.”

The fifth annual survey measures the opinions of over 1,300 directors serving on the boards of the top 2,000 publicly traded companies listed on U.S.-based exchanges.

The study also found that board members are being held accountable for their involvement. For example, a large majority of boards (86 percent) report that their performance is formally evaluated on a regular basis. Of that number, nearly six in 10 boards (59 percent) took action or implemented plans as the result of the evaluation.

Who performs the evaluation? A majority—59 percent—use their internal general counsel, while only 15 percent use an outside attorney. In addition, 14 percent use either an internal officer or outside advisor.

The survey also addressed the growing impact of so-called activist investors. But so far, board members don’t seem too impressed with the most aggressive group—the hedge funds. According to the study, just 3 percent of respondents say hedge funds influence their board the most. Rather, more than half the survey respondents (51 percent) say institutional investors influence their board the most. Meanwhile, 26 percent singled out analysts, 15 percent said ISS and rating agencies have the most influence, and 4 percent pointed to the plaintiffs bar.

What’s more, most directors said that they are either “not at all concerned” (41 percent) or only “somewhat concerned” (40 percent) about the impact of hedge funds on their company. On the other hand, 29 percent concede they are “concerned,” and 46 percent are “somewhat concerned,” about the impact of hedge funds on capital markets more broadly.

Other findings:

• Fifty percent of respondents report that their board is “very effective” in standing up to management, while 38 percent claim they are “effective.” The remaining 11 percent say they are “somewhat effective” in taking a stand against management.

• Sixty percent would like to see their board spend more time discussing the competition.

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