As US Boards Address More Topics, Companies Increasingly Rely on External Education Programs

NEW YORK, Jan. 11, 2024 /PRNewswire/ -- With boards now addressing a growing array of topics?ranging from AI to climate change to supply chain resilience?more companies are enlisting outside expertise and educational resources to improve board fluency in key areas.

According to a new report by The Conference Board with data from ESGAUGE, the share of US companies relying on a combination of internal and external education programs grew from 25% in 2018 to 37% in 2023 among S&P 500 companies. And in the Russell 3000, the share grew from 12% to 23%.

"Third-party experts can help educate the board in key areas relating to the digital and sustainability transformations of the business," said Merel Spierings, Senior Researcher at The Conference Board and author of the report. "In doing so, it is critical to partner with management to tailor the information they present to fit the company's specific needs and circumstances."

 As detailed in the report, boards are also conducting more comprehensive self-evaluations. While stock exchange listing standards require only that companies conduct board- and committee-level evaluations, as of November 2023, a majority of S&P 500 companies (56%) disclosed that they are now conducting a combination of full board, committee, and individual director evaluations, up from 37% in 2018. Similarly, the share of Russell 3000 companies adopting this approach grew by 20 percentage points, from 18% to 38%.

The report was produced with Debevoise & Plimpton; KPMG; Russell Reynolds Associates; and the John L. Weinberg Center for Corporate Governance. Additional findings and insights include:

While most US public companies rely exclusively on in-house board education programs for directors, more companies are complementing internal programs with external resources.

• S&P 500: The share of companies drawing upon both internal and external resources grew from 25% in 2018 to 37% in 2023.
  • The share of exclusively in-house programs declined from 67% to 61%.
• Russell 3000: The share of companies combining resources grew from 12% to 23%.
  • The share of exclusively in-house programs declined from 66% to 64%.

"Companies are operating in an era in which it is critical for both boards and senior management to be in a continuous learning mode," said Paul Washington, Executive Director of The Conference Board ESG Center. "Given the array of novel issues facing companies, open-mindedness and intellectual curiosity are key traits needed in corporate leaders, and director and executive education programs are no longer 'nice to have,' but indispensable for business success."

Incorporating individual director evaluations into the annual board self-assessment is now a common practice among larger companies.

• S&P 500: The share of companies conducting a combination of full board, committee, and individual director evaluations grew from 37% in 2018 to 56% in 2023.
• Russell 3000: The share grew from 18% to 38%.

Companies increasingly disclose hiring an independent facilitator for board evaluations?and larger companies are more inclined to disclose their use of independent facilitators compared to smaller ones.

• S&P 500: The share grew from 14% in 2018 to 36% in 2023.
• Russell 3000: The share grew from 5% to 17%.

Policies to limit the number of boards on which directors can serve typically set the limit to three additional board seats.

• S&P 500: The share of companies restricting additional board services to three seats increased from 36% in 2018 to 60% in 2023.
• Russell 3000: The share grew from 33% to 49%.

"In light of expanding workloads, boards should take a fresh look at the time commitments expected of directors and, if they haven't already done so, consider adopting policies that address the number of boards on which directors can serve," said Justin P. Klein, Director of the John L. Weinberg Center for Corporate Governance. "As part of the annual evaluation process, directors should assess their ability, both on an individual and collective level, to dedicate the necessary time to fulfill their responsibilities effectively and make informed decisions."

There has been an increase in companies adopting policies on committee member rotation.

• S&P 500: The share of companies adopting policies that include limits, rotation criteria, the reappointment process, and exceptions increased from 33% in 2018 to 36% in 2023.
• Russell 3000: The share grew from 16% to 26%.

"Boards should consider adopting a policy on rotating committee memberships to help support board education and excellence. A measured pace of turnover on committees can deepen directors' understanding of the company, support cross-committee collaboration, and bring fresh perspectives to committee discussions," said Umesh Chandra, Executive Director of ESGAUGE.

About The Conference Board
The Conference Board is the member-driven think tank that delivers Trusted Insights for What's Aheadtm. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.ConferenceBoard.org

About ESGAUGE
ESGAUGE is a data mining and analytics firm uniquely designed for the corporate practitioner and the professional service firm seeking customized information on US public companies. It focuses on disclosure of environmental, social, and governance (ESG) practices such as executive and director compensation, board practices, CEO and NEO profiles, proxy voting and shareholder activism, and CSR/sustainability disclosure. Our clients include business corporations, asset management firms, compensation consultants, law firms, accounting and audit firms, and investment companies. We also partner on research projects with think tanks, academic institutions, and the media. www.esgauge.com

Learn more about our sponsors: Debevoise & Plimpton; KPMG Board Leadership Center; Russell Reynolds Associates; and Weinberg Center for Corporate Governance.

SOURCE The Conference Board