Silicon Valley Public Company Governance Trends– SpencerStuart’s 2006 Board Index

SpencerStuart recently released their 2006 Silicon Valley Board Index, which surveys 100 public Silicon Valley technology companies and measures a variety of board governance metrics ranging from board size and composition to director compensation and the number and frequency of  committee meetings.

A few interesting facts from the report:

* Lead and presiding directors on Silicon Valley (SV) boards have increased substanitally to 43% today from 12% in 2003. S&P 500 companies, in contrast, have this position in 96% of their company boards.

* 58% of SV boards split the chairman and CEO role, up from 45% in 2003.  Most notable– among the smaller SV companies (revenues less than $250 million), this board role is split 83% of the time.  Among the largest SV companies, the split occurs 73% of the time.  In contrast, only one third of S&P 500 companies split the chairman and CEO roles.

NOTE:  The topic of separating the CEO and Chairman roles on the board is debated often with regard to private technology companies.  I have posted elsewhere on this blog that, in my personal experience, both models can work effectively, depending on who is at the table.  The key for private VC-backed companies is to be flexible enough in your model to recognize the formula that is most likely to work given the individuals involved in the mix.

*SV company boards met an average of 8.8 times per year in 2006, up from 7.4 meetings per year in 2003.

*1 year term limits for SV company directors are increasing– in 2006, 64% in 2006 of SV companies have one-year terms, up from 56% in 2003.

* 100% of SV companies have standing audit and compensation committees. 99% have a nominating/governance committee.

* Audit committees met, on average, 10.7 times in 2006, up from 7.7 times in 2003.

As part of the report, authors Nayla Rizk and John Ware of SpencerStuart interview Peter Clapman, formerly of TIAA-CREF and a member of the NACD board, Abe Friedman, director of corporate governance and proxy voting for Barclays Global Investors, and Richard Koppes, now at Jones Day and the former general counsel of CalPERS. Some excerpts from the interview:

Question: What do you think are the most important and lasting governance changes that have emerged in the U.S. during the past five years?

Koppes: "… the acceptance and routine practice now of executive sessions of the board are the most important."

Clapman: "…empowering the independent directors to more forcibly act independently."

Friedman: "…a broader acceptance of the role of shareholders in the corporate governance framework."

These are important and positive trends, and they suggest that private company governance also needs to continue to evolve in this direction.  Good governance is also good business.

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