Corporate Board Members Have Less Experience in Business Strategy

A new report reveals a red flag for corporate boards: At US public companies, the share of board directors who are reported as having business strategy experience has dropped significantly over the last five years. It declined from 70 percent in 2018 to 59 percent in 2023 in the S&P 500, and from 68 percent to 55 percent in the Russell 3000.

The decline in such experience among new directors was even more pronounced. In the S&P 500, business strategy experience declined from 66 percent in 2018 to 47 percent in 2023, which matched the decline in the Russell 3000 from 65 percent to 47 percent.

At the same time, companies are reporting higher levels of experience among directors in several ESG areas as compared to five years ago.

“The decline in business strategy experience may reflect a combination of underreporting of such experience and a shift in director recruitment. Regardless of what’s driving the trend, it’s concerning. Having such experience is important in fulfilling the board’s core responsibilities and in enabling directors to collaborate effectively and help keep shareholder activism at bay,” said Merel Spierings, Senior Researcher at The Conference Board.

The Conference Board report was produced in collaboration with data analytics firm ESGAUGE, along with Debevoise & Plimpton; KPMG; Russell Reynolds Associates; and the John L. Weinberg Center for Corporate Governance. Informing the insights are 1) public disclosure data, as recent as August 2023; and 2) key insights from governance leaders at a Chatham House Rule convening, where they discussed current trends in corporate boardrooms.

Additional findings and insights include:

All Directors

As business strategy experience has declined, the share of directors with reported functional experience in ESG areas has increased:

S&P 500: From 2018—2023: Environment/climate (0% to 10%); ESG (0% to 13%); human capital (17% to 34%); and cybersecurity (8% to 20%).
Russell 3000: Environment/climate (0% to 5%); ESG (0% to 8%); human capital (11% to 23%); and cybersecurity (4% to 12%).

New Directors

The share of new directors with reported functional experience in ESG areas has also increased:

S&P 500: From 2018—2023: Environment/climate (0% to 12%); ESG (0% to 15%); human capital (23% to 38%); and cybersecurity (15% to 18%).
Russell 3000: Environment/climate (0% to 6%); ESG (0% to 11%); human capital (13% to 24%); and cybersecurity (7% to 12%).

“Investors and other observers are skeptical of directors claiming expertise on too many subjects. To avoid being accused of greenwashing the board, companies should ensure that their directors’ self-disclosed qualifications can be substantiated,” said Richard Fields, Head of the Board Effectiveness Practice at Russell Reynolds Associates. “Companies should validate that directors have significant—and preferably recent—experience disclosed in composition matrices.”

As boards look to diversify professional experience, there’s been a slight decrease in current and former CEOs serving on boards:

Current or former CEOs: Ticked down from 42% in 2018 to 41% in 2023 in the S&P 500; and 37% to 34% in the Russell 3000.
Non-CEOs who are active/former C-suite executives: Increased from 14% in 2018 to 19% in 2023 in the S&P 500; and 17% to 21% in the Russell 3000.
Directors from a level below the C-Suite: The share grew from 11% in 2018 to 16% in 2023 in the S&P 500; and 16% to 21% in the Russell 3000.

Average board size has barely increased in recent years:

S&P 500: Average board size has stayed steady at 10.8 directors since 2018.
Russell 3000: Average went slightly up, from 9 directors in 2018 to 9.2 directors in 2023.

“Companies should take a fresh look at their board size to ensure it allows for the needed range of experience, skills, and perspectives,” said Umesh Chandra, Executive Director of ESGAUGE. “As board responsibilities continue to grow over the long term, boards should ensure that the board strikes the right balance between diversity of experience and thought, and efficient decision-making, and consider modestly increasing their size, as appropriate, to meet this balance.”