Governance Changes Reshape C-Suite

In fact, according to a Mellon Financial Corp. news release, a Mellon survey shows that many companies have adopted significantly more reforms and made a much wider array of changes since last year.

For example, boards are clearly becoming more active. Board meetings are lasting longer; fully a third of survey participants report day-and-a-half or two-day sessions. Equally notable is the increase in the number of board committee meetings. On average, audit committees are meeting eight times a year (double the number of two years ago), and compensation committees typically meet five times, up from four last year.

Board structure has also undergone dramatic changes. While few of last year’s participants reported having a lead director, 48% have one this year. Nomination and governance committees are rapidly increasing, rising from 47% in 2003 to 75% in 2004. Most boards – 83% – now report they conduct meetings without management being present. That was up from 55% last year.

“Commitment to reform has gone well beyond the tentative measures we saw a year ago,” Todd McGovern, a principal in Mellon’s compensation practice and corporate governance practice leader, said in a news release. “Boards seem to be increasingly committed to taking a more active and accountable role in corporate governance.”

While 17% of survey participants conducted director performance evaluations a year ago; that number has now more than doubled to 36%. While inside directors were almost entirely free from any evaluation process last year (10%), more than a quarter of surveyed companies now include them. The practice of evaluating the performance of committee members also doubled in the past year from 22% to 45%.

Total compensation for board members has increased between 20% and 35% because of their increased accountability.

Other findings of Mellon’s survey include:

• Almost 100% of survey participants now pay board and committee chairmen more than committee members.
• 41% of companies differentiate chairmen retainers by committee, with the audit committee typically at the top of the scale. Only 21% made this distinction in 2003.
• Equity compensation is offered to directors by more than 90% of the survey participants. However, the number of companies granting stock options declined, from 93% last year to 82% this year.
• 37% of companies now require directors to own company stock, up from 21% last year.

The study, completed in the third quarter of 2004, reports on the board practices of more than 200 companies. More information about Mellon is at www.mellon.com .