The pool of directors willing to sit on corporate boards—usually CEOs—is shrinking, according to the 17th Annual Spencer Stuart Board Index (SSBI). That means executive recruiters will be targeting CFOs to fill board vacancies, say experts.
Traditionally, board members look for active CEOs to advise senior management and serve as shareholder representatives. However, according to Tom Neff, Spencer Stuart’s U.S. chairman, CEOs are turning down director gigs today with “alarming” frequency. In fact, new SSBI data confirms the skittishness of CEO to sit on boards. The report says that, on average, CEOs sit on 1.2 boards, in addition to the boards of their own companies. This is a drop from 1997, when CEOs averaged two outside directorships.
“Large companies still look for active CEOs,” contends Neff, “But mid-sized corporations understand they will have a difficult time getting them.”
The larger problems is that CEOs are ducking out at the same time that the need for directors is on the rise. Indeed, the Securities and Exchange Commission and officials at stock exchanges recently proposed more stringent regulations on director independence, which means the search for outside directors is heating up.
So who will step up to the plate? Finance chief, among others. Mid-sized companies “are more open to recruiting individuals with different backgrounds, including retired CEOs, presidents, and CFOs,” comments Neff.
Currently, financial expertise on boards is lamentably scarce. The Spencer Stuart survey found that just 2 percent of audit committee members are accountants, and 3 percent are CFOs. On the other hand, 48 percent are active or retired chairmen, presidents, or CEOs. This raises questions about compliance with the SEC and legislative and stock exchange proposals that require strong financial expertise on the committee, say Spencer Stuart pundits.
CFO’s phones–and ears–are ringing already. “There have been frequent requests for active and retired chief financial officers and retired senior partners from accounting firms,” says Julie Daum, who heads Spencer Stuart’s U.S. board-member practice. “Companies are struggling to interpret the proposed regulations and definition of financial expertise. They would rather be conservative and staff their audit committees with directors who have accounting certification than risk not being in compliance,” continues Daum.
As Daum sees it, this year’s SSBI numbers provide an in-depth portrait of boards and board governance on the cusp of an historic change wrought in U.S. board governance by the Sarbanes-Oxley Act, and pending stock exchange rules. “Boards have a long way to go to reach SEC, exchange, and legislative mandates, and we would expect to see movement in next year’s data toward greater compliance,” adds Daum.
The SSBI report reveals a 44-percent increase in the number of new directors added to S&P 500 boards during 2001, but Spencer Stuart officials estimate several hundred directors will have to be added during 2003 and 2004 to comply with new regulations that mandate the presence of independent directors on committees.
CFOs on the Move
Retail giant Sears, Roebuck and Co. tapped CFO Paul Liska to head its profit-driving credit card division. Succeeding Liska as finance chief is Glenn Richter, who joined Sears in 2000 as VP and controller Liska, who joined Sears as CFO in June 2001, follows departing Kevin Keleghan as EVP and president of credit and financial products. The division accounts for about 61 percent of the company’s operating earnings. The retailer did not say why Keleghan, 45, left the company. Sears’ CFO is movin’ up. From 1997 to 2000, Liska was executive vice president and CFO for The St. Paul Cos.
(CFO PeerMetrix: Compare cost management at Sears and some of its largest competitors.)