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Fortune 1000 Board Directors Reveal Gaps In Corporate Governance

Submitted by: Korn/Ferry International

Categories: Corporate Governance

Posted: Oct 17, 2002 – 12:00 AM EST


Necessary Changes Seen as Long Term Process

Oct. 17 /CSRwire/ - NEW YORK, New York - Korn/Ferry International's 29th Annual Board of Directors Study shows that directors at Fortune 1000 companies are making long term progress in efforts to implement board practices for stronger corporate governance, but some significant gaps still remain. The study findings are based on responses from 908 directors of Fortune 1000 companies representing 209 Fortune 1000 boards.

This year:

-- 71.2 percent of Fortune 1000 boards have written guidelines on corporate governance, compared with 65 percent in 1995;
-- 36.9 percent of boards formally evaluate the entire board's performance on a regular basis, compared with 26 percent in 1995; and
-- 62.3 percent of boards have a formal committee that reviews corporate governance processes and board operations, compared with 41 percent in 1995.

"While progress is being made, corporate boards will have to do more, especially in light of new regulatory mandates designed to formalize corporate governance processes in the wake of notable failures of board oversight over the past year," said Charles King, head of Korn/Ferry's Global Board Services Practice.

The survey also found that board practices are not yet keeping pace with the sentiments of directors regarding good governance practices. Directors say that a "formal management succession process in place" is one of the three most important factors in determining good governance, but:

-- only 64.1 percent of boards have a management succession committee or process, and
-- only 50.6 percent of directors say the board is effective in this area.

"Corporate governance rule proposals adopted by the New York Stock Exchange Board of Directors in August say that listed companies must adopt and disclose corporate governance guidelines on management succession and other key processes," Mr. King said. "Such mandates could create issues for the significant percentage of companies that, according to our survey, do not even have such guidelines or processes at this time.

"Evaluation of individual directors clearly has not yet taken hold as a board practice," Mr. King said. "Boards going forward can anticipate closer examination of how they measure the performance and, ultimately, the effectiveness of directors on behalf of shareholders, as part of the heightened concern over how well boards are executing their crucial oversight role." The Korn/Ferry study finds that:

-- 72.3 percent of directors say that individual directors should be evaluated regularly regarding performance, while:
-- only 20.9 percent of boards currently conduct such evaluations, and
-- only 41.4 percent of directors on those boards think that the evaluations are effective.

Other key survey findings are:

-- Independence is an essential concern of directors:
-- 78.5 percent of directors say the former CEO shouldn't sit on the board
-- 72.9 percent of directors say the board should typically hold regular executive sessions without the CEO during board meetings
-- however, just 41.5 percent of boards typically hold such sessions.
-- Directors are spending an increasing amount of time on board matters -- an average of 15.3 hours per month, or approximately 183 hours annually, compared with 156 hours annually in 2001.

-- Most directors (82 percent) say their company's CEO compensation program is effective:

-- 58.5 percent of directors think the majority of a director's compensation should be in stock, and
-- 51.5 percent of boards have a requirement that directors own shares of company stock.
-- 58.3 percent of directors would like to see their board become more diverse by increasing its minority representation.

This year's survey was conducted with Corporate Board Member.

About Korn/Ferry International

Korn/Ferry International (NYSE:KFY), with over 70 offices in 36 countries, is the world's leading provider of executive human capital solutions. The firm works closely with clients worldwide to deliver customized executive search, management assessment and mid-level search services, including the identification of CEOs, COOs, CFOs, board members and other senior-level executives; the formal evaluation of senior management teams; and the recruitment of middle managers through its Futurestep subsidiary.

For more information, visit the Korn/Ferry International Website at www.kornferry.com or the Futurestep Web site at www.futurestep.com.

For more information, please contact:

Jennifer Silver Korn/Ferry International
Phone: (617) 790-5727
Deidre Campbell TorranceCo
Phone: (212) 521-5213


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