The top corporate boards in the U.S. have seen an uptick in CEOs over the last year, according to the 2014 edition of The Weight of America's Boards by JamesDruryPartners.
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The study, which provides a perspective regarding the governance capacity of America's largest corporations, found that active and retired CEOs are returning to corporate boardrooms after a prolonged decline in outside board service that began in 1990.
Board seats among the top 500 American corporations by revenue and market capitalization that are filled by active CEOs increased by 1.3 percent, while seats held by retired CEOs increased by 2.5 percent. Active or retired CEOs now fill 2,064 of the 6,097 board of director seats of the top U.S. companies.
The 2014 report, the fourth produced by JamesDruryPartners, ranks the governance capacity—a measure of the experience and business acumen of board members—of the country's largest companies by revenue and market capitalization.
The study includes three separate rankings: total board weight (TBW), which measures the total board governance capacity of a corporation and takes into account the total number of board members; average director weight (ADW), which measures the business acumen of the average director on a board; and composite weight rank (CWR), which averages the rankings in the first two categories.
Leading the pack in the study's TBW ranking is BlackRock, followed by General Electric, IBM, Ecolab and U.S. Bancorp. Chesapeake Energy has the highest ADW, followed by Parker-Hannifin, PPG Industries, Marathon Oil and Baker Hughes. Baker Hughes also has the highest CWR, followed by Parker-Hannifin, IBM, Ecolab and American Express.
In addition to analyzing the business acumen of corporate boards, the study provides unique insight into board diversity. It found more diversity in corporate boards than last year with an 8.5 percent increase in women directors, who now hold 19 percent of board seats among the companies studied.
The financial services industry has the most female directors with 208 in total. Though they have fewer female directors, 100 percent of boards in the utilities and health care sectors include at least one woman.
In addition to gender diversity, the study examined the ethnic makeup of corporate boards in the U.S. It found that, during the period studied, 838 board seats were held by 655 non-white directors.
Black and Hispanic directors account for 10.4 percent of all board seats among the companies studied, while Asian, Indian and Middle Eastern directors account for 1.6 percent, 1.4 percent and 0.3 percent of all board seats, respectively.
The industries that appear to have the most ethnic diversity are utilities, telecommunications and consumer goods, while the industries that appear to have the least diversity include health care, technology and oil and gas (though technology has more Indian and Asian directors, while oil and gas has more Middle Eastern directors).
In 2014, corporate executives with P&L experience continued to have a strong presence in boardrooms, holding 57.5 percent of all board seats in the companies studied.
Outside financial advisors, including commercial bankers, investment bankers, private equity investors and venture capitalists, account for the second largest group of board members with 13.2 percent of seats.
The smallest professional group represented is comprised of "non-mainstream industry" executives, including advertising, media, publishing, real estate and sports executives, who hold 1.3 percent of seats. Those with no professional affiliation at all hold 11 of the 6,097 seats of the corporate boards studied.
The results of the 2014 report are consistent with earlier reports, finding that the strength of business acumen among many of America's corporate boards continues to be less than expected.
In 1990, 70 percent of active Fortune 500 CEOs served on outside boards, filling 772 seats. In 2014, only 47 percent of active Fortune 500 CEOs served on outside boards, filling 276 seats.
To improve business acumen, JamesDruryPartners advises that boards strive to achieve rankings in total board weight, average director weight and composite weight rank no lower than 50 points below their revenue rank and/or market cap rank.
Thus, a corporation that is the 100th largest in the U.S. in terms of revenue and market cap should strive to fall within the top 150 companies in TBW, ADW and CWR. This year's report found that only 18 percent of America's largest companies by revenue met the criteria suggested by JamesDruryPartners, while only 16 percent of the largest companies by market cap were able to do so. ■