Study: Makeup of Boards Is Shifting

The post-Enron drive for greater independence of boards of directors has succeeded in reducing the overlap among Standard & Poor’s 500 companies’ boards, though the improvement has been modest, a new study suggests.

Fewer directors are burdening themselves with more than two board memberships, and fewer chief executives are devoting time to companies other than their own.

The study released Monday by Corporate Library shows that among the 4,288 people who last year sat on S&P; 500 boards, 261 sat on at least three boards, down 13% from 301 in 2002.

Among CEOs, 195 held outside directorships, the same as in 2002, but only 57 held more than one, down from 72. The average S&P; 500 board has 11 members.

The changes follow implementation of the SarbanesOxley Act of 2002, after shareholders were hurt by high-profile scandals at Enron Corp. and WorldCom Inc.

Observers said board overlap should decline more over time.

“Directors typically remain in office for long periods of time,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “The trend is in the right direction, but it will take several more years to fully manifest itself.”

Jackie Cook, a Corporate Library researcher who conducted the study, said CEOs and directors face pressure to reduce outside directorships to focus on their other jobs.

In addition, she said, “board and shareholders [are becoming] more sensitive to potential conflicts of interest inherent in patterns of board membership.”

Eight percent of S&P; 500 companies’ boards, up from 4% in 2002, are chaired by truly independent outsiders, Corporate Library said.

Also Monday, former Securities and Exchange Commission Chairman Harvey Pitt said securities regulators should make it easier for shareholders to nominate directors for corporate boards.

Pitt, at a meeting of the Council of Institutional Investors in Washington, said shareholders should be given a greater voice in corporate governance, especially if they propose a “thoughtful process” for considering investor nominees, Bloomberg News reported.

“The SEC’s shareholder proposal rule is in need of serious revision,” Pitt said.

The SEC is scheduled to take up the issue Oct. 18.