Two years after the introduction of the Sarbanes-Oxley Act of 2002, corporate reform continues to impact corporate directors, according to a recent study by Corporate Board Member magazine and PricewaterhouseCoopers LLP. The third annual "What Directors Think" study measures the opinions of directors and CEOs of the top 2,000 publicly traded companies. The 2004 survey findings, which the magazine will highlight in its special year-end "What Directors Think" issue, reveal continuing changes in directors' attitudes and actions.
Some of the findings include:
- As boards' time demands continue to increase, the unofficial title of "professional director" in which individuals sit on six or more boards is quickly fading. In 2003, only 33 percent of CEOs and 16 percent of outside directors were limited to additional board seats, compared to 43 percent and 29 percent, respectively, in the 2004 survey findings. This trend will likely continue - 71percent of survey respondents said there should be a limit to the number of boards on which an outside director can serve. The average number of boards on which CEOs and outside directors can now serve is three. These statistics imply that search committees will have to cast a wider net to find qualified independent directors.
- For many directors, increased time demands coupled with new risks call for an increase in pay, particularly for lead directors and audit committee chairs. Of survey respondents, 98 percent said audit committee chairs should receive additional compensation, compared to 81 percent who said so in 2003 and only 54.1percent in 2002. In addition, 68 percent of this year's survey respondents said lead directors should receive additional compensation. More than half of the respondents believe the lead director and audit chair should get 25 percent more compensation than other directors, and almost one-third believe it should be as much as 50percent more in both cases.
- The survey asked directors how much time-more, the same, or less-they think their boards should devote to 14 different subjects. Strategic planning was the number one action item, with 58 percent of respondents saying they'd like more time to discuss it. The other top responses were succession planning, meeting key managers, visiting work sites, and discussing the competition.
- Corporate governance reform is a burden for many companies. One out of five (20 percent) directors surveyed said Sarbanes-Oxley has created an environment where management is so distracted that company performance will be affected; this number is up from 13.9 percent in 2003.
- But even with Section 404 looming, confidence is increasing-82 percent of directors believe their company is prepared to implement Section 404 on internal control reporting. However, only 50percent of directors surveyed think Section 404 internal control reporting requirements will make a difference in the quality of their company's financial statements; and less than half (44 percent) think Section 302 certification of financial statements by the CEO and CFO will make a difference.
Of the 10,000 directors surveyed, 1,279 responded for a 12.8percent response rate. Of the respondents, 84 percent answered as outside directors. The survey was sponsored by PricewaterhouseCoopers and conducted by Corporate Board Member. The purpose of the research was to gain insight on the challenges directors face as they operate in a post-reform environment. The complete survey and results can be found on Corporate Board Member's Web site.
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