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Who’s Not At The Table – The Missing Best And Brightest In America’s Boardrooms: JamesDruryPartners 2012 Rankings Of The Strongest And Weakest Boards

Marathon Oil, Parker Hannifin and Black Rock take top spots as governance strength at other prominent companies goes down

  • The presence of the best and brightest in American business continues to decline on the boards of the country’s most important companies, compounded by boards shrinking in size.
  • Dramatically and measurably, weak boards lower share prices, specifically, and, more generally, but importantly, sink confidence in how well boards are doing their jobs – all at a time of continuing economy fragility
  • Shareholder activism, though widely reported and often applauded, has changed nothing – among investor advocates, in fact, cronyism is alive and well

CHICAGO, IL. (July 11, 2012) The most neglected aspect of corporate governance is the quality of who’s doing the governing. To a stunning degree, fewer and fewer of the country’s sharpest and most experienced business minds are not driving decision making in American boardrooms. The representation of Fortune 500 CEOs on boards fell nearly 33% in the past 20 years and the number of seats CEOs filled fell 62%. At the same time, only 14% of boards have an active CFO as a director on their audit committee, even though the SEC requires at least one audit committee member to qualify as a “financial expert.” Increasingly, for many companies, a growing number of the best and the brightest are simply not at the table in the country’s boardrooms, with acute and measureable impact on stock performance and shareholder trust.

Once again this year, in the only study of its kind, JamesDruryPartners 2012 report, The Weight of American Boards, ranks the governance capacity – a measure of the experience and business acumen of board members – of the country’s most important companies. Marathon Oil ranked first, followed by Parker Hannifin and BlackRock, with last year’s Number One, McDonald’s, falling off slightly to 6th.

Ranked at the low end or losing significant ground were companies including Icahn, Cablevision and WellPoint. Overall, the report describes significant governance weakness at the heart of the American economy: too many members of too many boards seated because of who they know or how well they are known – not because of what they know about business.

Emboldened shareholder activism, widely reported and often applauded, has not shown discernible ability, or even interest, in enhancing the quality of who sits on boards. In fact, among some of the most vocal stockholder advocates, cronyism in support of their own candidates for boards is very much alive and well.

“As highlighted in our 2011 study,” says Jim Drury, Chairman and CEO of JamesDruryPartners, “We continue to be concerned with the erosion of the quality of business acumen in America’s boardrooms. Shareholder activists continue to broadcast skepticism regarding the value of active CEOs serving on outside boards, promoting the view that CEOs are short-changing their own companies where they should be focusing all of their attention. Our fundamental premise is that director business acumen is the most important factor in calibrating governance capacity. It defies logic to suggest that governing complex businesses can be more effective if America’s most accomplished executives are not present as directors in the boardroom.”

The impact of whether a board is weighted high or low in the study is real, and it is sweeping. It is a predictor of a company’s ability to perform for shareholders short term and to sustain profitability in the long run. In good times or bad, it should always be fundamental to ensure that boards are composed of the most insightful and seasoned men and women in business. Amid so much continuing economic fragility and uncertainty, seating anyone based on any other criteria but their strategic business acumen should raise serious questions.

Board Composition

The 2012 study analyzes not just the governance capacity of America’s boards, but also their composition in depth.

Overall, CEOs of the largest publicly listed corporations in North America continue to serve on fewer outside boards. In 1990, 70% of Fortune 500 CEOs served as directors, filling 770 board seats, or an average of 2.2 seats per CEO. Today, only 47.2% serve on boards, filling 294 board seats, an average of 1.24 seats per CEO – and a decline of 62%.

The study shows that of 4564 board seats across the largest 466 publicly listed companies, active CEOs (23.25%) and retired CEOs (11.52%) are the most heavily represented groups respectively. The more broadly defined category of P&L-responsible executives account for a majority of board seats.  Surprisingly, outside financial advisors – Investment Bankers, Private Equity Investors, and Venture Capitalists – fill almost 13% of all board seats – the second highest representation after CEOs.

Jim Drury comments: “While for years it has been widely assumed that board audit committees are overflowing with financially minded executives, the staggering reality is that the number of seats filled by people from financial management and accounting backgrounds is extremely low. The average shareholder probably believes that most financial experts are CFO’s or public accountants; nothing could be further from the truth.”

Contrary to popular assumption, America’s audit committees are not made up primarily of corporate finance executives and public accountants.  Together they represent only 9.6% of all Fortune 500 board seats and 23.6% of audit committee seats.

As already highlighted, only 64 (14%) of the 466 boards analyzed have an active CFO as a director – 402 boards do not.  More surprisingly, there are a number of large companies that have neither a CFO nor a retired public accountant as directors. 1,853 members serve on “audit committees”.  By law, an audit committee must be staffed by independent directors and include at least one “financial expert” as defined by the SEC.  There are 1,066 designated financial experts.  Only 76 financial experts (7%) are active CFOs, 191 (18%) are retired CFOs, and 116 (11%) are public accountants by background.  In total, CFOs and accountants represent only 36% of the “financial expert” population, 21% of all audit committee members, and 8% of all Fortune 500 board directors – a surprisingly small representation.

Shareholder Performance

The study also bolsters the argument made in 2011 that there is a significant correlation between stock performance and the extent to which a company’s governance capacity exceeds (or falls short of) expectation relative to its revenue size.  The 25 companies with “Greater-Than-Expected Governance” over the last 5 years experienced Share Price Growth of +29%,  compared to the Dow Jones Industrial Average of +7%, the S&P 500 Index of -0.4%, and the “Less-Than-Expected-Governance” companies of +16%, in the same timeframe.

While the results have fluctuated slightly, the study’s conclusions are largely in tune with those of last year.  The report shows that while one might expect that America’s largest corporations – given their significant economic importance, high market value, and broad shareholder participation – would be among the top boards in governance capacity there are, in reality, many surprises.

JamesDruryPartners highlights some of these surprise cases in which the size (revenue) and governance capacity ranking of a company do not match up.  For example Wal-Mart (WMT), whose revenue ranks highest, ranks 49th in Total Board Weight (TBW), simply the sum of the assigned weights (business acumen) of all board members, and 305th in Average Director Weight (ADW), the average business acumen scores of board members.  On the other hand, BlackRock (BLK) (282nd in terms of revenue) ranks 1st in TBW and 18th in ADW.   Harley-Davidson (HOG), RadioShack (RSH), MasterCard (MA), and Eastman Chemical (EMN) are among the surprisingly heavy boards, while, Berkshire Hathaway (BRK.A), J.P. Morgan Chase (JPM), Costco (COST), and Dell (DELL) find their rankings among the surprisingly light boards.  These discrepancies are hugely significant as a company’s Corporate Governance performance can have an extremely beneficial (or harmful) effect on share price performance.

High Scoring Industries

JamesDruryPartners’ rankings of Corporate Governance Capacity by Industry Sector have remained similar to those of last year.  Corporations in the Consumer Products and Industrial Manufacturing sectors have the best rankings, on average, in Composite score – simply put the lower the CWR (Composite Weight Rank) score, the better the overall governance capacity.   Corporations in Consumer Products averaged a composite ranking of 163.1 (an improvement compared to 173.8 in 2011) and those in industrial manufacturing average a composite ranking of 173.1 (from 195), showing that boards in these industries have increased their capacity to govern over the year.  Consistent with last year as well, Health Care Services, Utilities, and Industrial Services have the overall lowest governance capacity.


This year’s study applies an even more detailed and intricate “scale” to determine board members “weight,” including factors like the size of a CEO’s company, differentiating between those with greater or lesser than $500MM in revenue, while upgrading the scores of COOs and decreasing those of “non-CFO financial executives.” The result is even more accurate conclusions than last year’s inaugural report. The changes are based on feedback from board Chairmen who were very supportive of the 2011 study, but interested in deepening it even further.  This input, for example, along with the sharpened methodology, helped uncover insights, such as a growing proportion of directors (57%) who are retired.  As most boards tend to value the experience of active versus retired directors, this trend may suggest a gradual weakening in the governance system.  Also, as America’s boards are continuing to shrink in size, this may result in less diversity of director opinion, a key component for the best decision making.


JamesDruryPartners hopes to generate a higher level of understanding of the role of corporate boards in American business.  Boards are not infrequently scapegoats, blamed in times of trouble.  JamesDruryPartners is committed to shifting attitudes on a number of levels, fundamentally to help improve America’s boards, make them smarter, but also to recognize boards with high governance capacity so that some critics think twice before ‘firing a shot.’

America is still the indispensable economy. At the same time, we all know we need to do better. The study is meant to make a difference by its unique focus on the axle that turns so much of what our companies do – America’s boards.

Copies of the report are available at +1 (312) 654-6702 or


Founded in 2001 by Jim Drury, JamesDruryPartners provides an array of board advisory services focused on CEO succession planning and the recruitment and placement of talented board directors.  The firm’s extensive board and governance practice is one of the most diverse in the industry, spanning 25 years, during which it has placed more than 175 directors.  JamesDruryPartners is committed to furthering the concept of “continual director succession planning”, enabling boards to consider the best and brightest director talent available on an ongoing basis, rather than simply on the occasion of a pending director retirement.