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07 December 2023 | Press Release
Science and technology. Health and safety. ESG and sustainability. A few years ago, board committees on such topics were nearly non-existent. But as boards expand their role to address a broadening array of topics, they are not only assigning responsibilities to existing committees but also starting to form new types of committees.
As detailed in a new report by The Conference Board with data from ESGAUGE, 74% of S&P 500 firms have more than the three committees required by stock exchange listing standards: 36% have four, 21% have five, and 13% have six. When it comes to the allocation of ESG responsibilities, virtually all S&P 500 firms disclose assignment of such responsibilities to the full board and/or one or more committees. For example, 89% of the companies have assigned human capital management issues (including DEI, employee health and safety, talent recruitment and development, corporate culture, among others) at the board or committee level.
The share of S&P 500 board committees on science and technology increased from 10% in 2018 to 14% in 2023, and committees on environmental, health, and safety increased from 7% to 10%. ESG and sustainability committees are just starting to emerge. As new types of committees begin to take root, there has been a slight decline in some of the traditional board committees, including the executive committee (from 33% in 2018 to 31% in 2023) and finance committee (from 30% to 25%).
“The traditional approach of having three standing board committees—audit, compensation, and nominating—was established over 20 years ago when the focus was on the board’s independent oversight of management. While boards still fill that role, they are increasingly serving as strategic thought partners for management across a broader array of topics, and boards should take a fresh look at whether their committee structure effectively supports the board’s current remit,” said Paul Washington, Executive Director of The Conference Board Governance & Sustainability Center.
Even as boards are increasingly expected to take on a strategic thought partnership role, there has been a decline in business strategy experience among independent board chairs and lead independent directors. In the S&P 500, such experience among independent chairs dropped from 78% in 2022 to 72% in 2023, and from 70% to 66% among lead independent directors.
The report was produced in collaboration with Debevoise & Plimpton; KPMG; Russell Reynolds Associates; and the John L. Weinberg Center for Corporate Governance. Additional findings and insights include:
Board Committees
General ESG oversight responsibilities are most frequently allocated to the nominating/governance committee, but companies may want to address the role of the full board with respect to ESG.
“While committee responsibilities appropriately vary by company, the full board may be better equipped to oversee the integration of ESG and stakeholder interests into the company’s business strategy and operations,” said Merel Spierings, author of the report and Senior Researcher at The Conference Board. “Even if boards are allocating ESG responsibilities to the nominating/governance committee only temporarily, they should consider whether that committee has the right composition and enough resources to fulfill its responsibilities effectively.”
Board Meetings
Despite increasing workloads, the frequency of board meetings has dropped to below pre-pandemic levels.
Board Leadership
At larger companies, the trend toward board chair independence seems to have plateaued:
“CEOs of smaller companies with limited resources may wish to focus on managing the firm and have a chair who focuses on the board and oversight. By contrast, larger companies may place a premium on having a single individual who provides leadership for the company, can engage with all stakeholders, and is accountable for the firm’s performance,” said Umesh Chandra, Executive Director of ESGAUGE.
Fewer companies are requiring a CEO/chair combination, while more are giving their boards flexibility between CEO/chair separation and combination.
Informing the report’s findings and insights are 1) public disclosure data, as recent as August 2023; and 2) insights from governance leaders at a Chatham House Rule discussion, where they discussed their views on current trends in corporate boardrooms.