Infectious Greed: Restoring Confidence in Americas Companies

S&P 500 firms have about 11 directors each. So who occupies these 5,500 or so board seats? Virtually anyone can be a board member, but to believe that this is the reality is being very idealistic. Those nominated by a firm's management or board's nominating committee are the ones who eventually become directors. Therefore, if you don't personally know the firm's CEO or a current board member, it is extremely difficult for you to become a director. According to the 2001 Korn/Ferry Annual Board of Directors Study, about two thirds of current directors say that the CEO/chairman has the most influence in identifying new directors. ^[8] Of course, there are other ways to get a board seat. If you are a university dean/president or a politician, you could be viewed as a respectable figurehead. A board may therefore solicit your candidacy. If you are not figurehead material, you would probably need to be identified by an executive finder, such as Korn/Ferry or Heidrick & Struggles, as a viable director candidate. However, getting a recommendation from these finders is tough. For example, Korn/Ferry states that a person would have to possess 10 to 20 years of experience in a business leadership role, be a current COO or CFO of a large company, or be one of the top 15 executives at a very large corporation in order to be considered a viable director. ^[9] Finally, a shareholder could submit a proposal to obtain a board seat, but unless he or she is well known or wealthy enough to launch an expensive campaign, this route may actually be the most difficult. We'll discuss shareholder proposals in more detail in Chapter 11, where we discuss shareholder activism.

You may think that a person getting a director nomination means that there is only a good chance that he or she will eventually get the directorship, but it's actually more like a sure thing. In the annual elections for board seats, an overwhelming majority of board-nominated directors win ” generally going uncontested. Why is this? Usually, shareholders don't show up to vote or return their proxy votes by mail. When shareholders do vote, they often follow the suggestions of management or the board. ^[10] This being the case, it's not surprising that boards end up being comprised of current and former business leaders ”often CEOs from other firms. They also include current or former employees , academics , bankers, university presidents , and even politicians . According to the 2001 Korn/Ferry Study, 91 percent of Fortune -listed firms have a retired executive serving as a director, 83 percent have an executive from another firm, 56 percent have an academic, and 52 percent have a former government official. ^[11] With regard to gender and race representation, the data seems somewhat promising . Seventy-four percent of the boards have a woman director and 65 percent of them have an ethnic minority, with African Americans sitting on 41 percent of our nation's boards. However, with a cynical viewpoint, compensation expert Graef Crystal once stated that a board could be generalized as "ten friends of management, a woman and a black." ^[12]