Dissatisfied directors are increasingly speaking up about fellow board members they feel are falling short and should be replaced. And the search for new blood is turning too some unconventional sources with limited impact so far, PwC said in a new report.
A large number – 35 percent of directors – say someone on their board should be replaced, PwC’s 2016 Annual Corporate Directors Survey determined.
Of that number, 25 percent said that replaceable directors weren’t prepared for meetings, up from 11 percent in 2012. About 17 percent said that the director in question lacked the right expertise; Only 13 percent cited that reason in 2012. Approximately 12 percent said a director needed replacing because he or she was too old; That’s down from 15 percent in 2012.
How to search for new directors? Back in 2012, 91 percent of respondents said they relied on board member recommendations, a long tradition. Things seem to be changing slowly, with 87 percent of respondents citing this method in 2016.
About 18 percent say they rely on investor recommendations now for director replacements, reflecting the growing influence of investors in corporate affairs. That’s up from 11 percent in 2012. Approximately 11 percent rely on public databases, versus 4 percent four years ago.
“A shift is starting to happen,” PwC said in its report. “Calls for board diversity and investor influence on board composition have prompted some boards to use less traditional sources to find new directors.”
So how is this push for diversity fairing? According to PwC, 96 percent of directors responding said that diversity is important. But female directors were much more supportive of the benefits of board diversity than male directors, according to the survey.
Nearly 90 percent of female directors said that diversity led “very much” to better company performance, versus 24 percent of men. Ninety-two percent of women directors said diversity leads “very much” to enhanced board effectiveness. About 38 percent of male directors had the same sentiment, PwC said.
As the report noted, women made up 20 percent of S&P 500 boards in 2015, up just 5 percentage points in a decade. While most directors say that as much as half of a board should be female, 10 percent of directors – mostly male, said that the ideal mix should be what it already is now, or less.
But if board is looking for diverse directors, where should they be found? PwC said that many qualified candidates exist a few notches below the C-suite, including those who run business sections and must work like a CEO as a result. With that in mind, a disconnect remains as to whether the talent pool is big enough. Ninety-three percent of female director respondents said that the talent pool is large enough for directors, but 64 percent of male directors agreed with this.
According to PwC, 4 percent of S&P500 CEOs are female, and 1 percent of Fortune 500 CEOs are African American. But board members typically look to current or former CEOs as director candidates, making it hard to create a more diverse board.
For the full report, click here.