Many observers have been vocal in their perception of a decline in director quality in recent years. According to the 2019 PwC Corporate Directors Survey, 49 percent of US directors say one or more fellow board members should be replaced, and 23 percent say two or more should go. These numbers are up from both 2017 and 2018. If that perception is true, then one must question why boards do not do a better job undertaking assessments and acting on their findings.
One issue to begin with is that not enough boards are doing impactful board and individual director assessments. While most companies have a mechanism for collective board assessment, just one in seven Russell 3000 companies, and fewer than one in three S&P 500 companies, have an annual review process for individual directors. The majority of boards are failing to fully implement even a basic approach to evaluating director performance. Unfortunately, among those that do, many use a survey-centric approach, with a director survey being the primary data-gathering effort. Directors often fail to give these surveys the real candor and insights required. The result is that a growing number of institutional investors and governance experts are acknowledging that assessments which rely primarily on electronic surveys are close to worthless.