The global marketplace is changing in fundamental ways that require international corporations to rethink their business products and services, and pricing and distribution strategies. The world population is on a trajectory to grow from seven billion today to nine billion within the next few decades, with the majority of people living in cities. Three billion additional new consumers will enter the middle class, primarily from developing markets. These emerging middle class consumers will seek more affluent lifestyles. Furthermore, with today's population already consuming resources equivalent to more than 1.5 Earths, we are on an unsustainable path to meet the demands of a larger global community. As a result, companies will increasingly be challenged by the scarcity of resources. Additionally, technology will continue to play an instrumental role in the delivery of services, from financial products to healthcare and education.
Such dynamic challenges and opportunities require corporate boards of directors with high levels of experience, expertise, and insight related to emerging markets, and the financial, economic, environmental, and social implications of the global marketplace. One might imagine the ideal board being comprised of people who grew up with the Internet, and people from all regions of the world, including of course emerging markets, and from a variety of perspectives.
Unfortunately, the boards of directors of the S&P 500 -- the largest companies publicly listed in the U.S. stock market as determined by Standard & Poor's -- are dominated by people whose average age is nearly 63 years old, 83 percent of whom are men. In other words, people who grew up in an era when copies were made with mimeograph machines, calculators and electronic typewriters were first introduced only when they were graduating from college, and the Internet became in common use only when they were in their late 30s. It gets worse: In 2012, non-U.S. directors accounted for only 9 percent of all directors in the S&P 200, only a slight increase from 7 percent in 2007. Only 57 percent of S&P 200 companies had even a single non-U.S. director on the board, up from 50 percent in 2007. This information is provided by the Spencer Stuart Board Index 2012.
Furthermore, only 12.7 percent of the Fortune 500's boards are Black, Latino and Asian, according to the DiversityInc Top 50.
Perhaps board turnover will help rectify the problem to include people with the right qualifications. Well, no, that won't happen. Boards are quite entrenched. You see, according to Spencer Stuart only 17 companies of the S&P 500 had term limits in 2012, so board members can continue on forever. In fact, 64 percent of the S&P 500 directors have served 10 to 15 years, and an additional 5 percent have served more than 15 years. (One incentive for board members to keep their positions is that the average pay is $242,385, up 15 percent in the last five years, to attend 8 meetings per year.)
Perhaps most striking of all is that according to Spencer Stuart in 2012, S&P 500 boards had the smallest intake of new independent directors in ten years. In fact, board turnover at S&P 500 companies was the lowest in a decade last year, with 291 of 5,184 director seats changing hands.
It can't possibly be in the interests of shareholders, companies, efficient markets, or a better world for board members to hang on for years and years, especially people who have little or no experience or expertise in the most vital challenges facing today's global marketplace. What do you think?
My forthcoming book, "A Better World, Inc.: How Companies Profit by Solving Global Challenges...Where Governments Cannot" is being published by Palgrave Macmillan and will be available for pre-order on Amazon this fall.