For some investors, there is no substitute for an independent board chair.
Board leadership structures have evolved dramatically over the past 20 years. Today, 92% of S&P 1500 companies have independent board leadership, up from just 10% in 2000. This change corresponds to a rise in independent directors, as well as the continuing separation of chair and CEO roles.
Today, 60% of S&P 1500 companies have separate individuals serving as chair and CEO, more than doubling the 27% that separated the roles in 2000. But while the shift towards independent board leadership is clear, the form that leadership takes, and the responsibilities assigned to those leaders, differ among companies.
A review of S&P 1500 companies and found that, among the various independent leadership structures, independent board chairs have been experiencing the fastest increase since 2000. We also found marked differences between the levels of authority commonly assigned to the different independent leadership roles, as well as emerging disclosure and engagement trends that raise the profile and highlight the strength of independent board leaders.
Continuing trend toward independent chairs
When it comes to independent board leadership, views on best practice vary. Corporate disclosures differ on why one type of leadership structure may be more effective for a particular company. Also, what works best may change over time based on company-specific circumstances and board dynamics.
Views among investors differ too. For some investors, there is no substitute for an independent board chair, while others find lead directors to be sufficient provided the responsibilities are clearly defined and robust.
The evolving independent board leadership landscape reflects this varied approach. While overall more S&P 1500 companies are appointing independent chairs, S&P 500 companies are still far more likely to have lead directors. The practice of appointing presiding directors, who are often viewed as having a more passive role, continues to decline.
Boards should use the annual self-evaluation process or a time of transition as an opportunity to reconsider the appropriate board leadership structure given the company’s specific circumstances.