NEW YORK--(BUSINESS WIRE)--Shareholder activism at S&P 1500 companies results in corporate board members who are younger and more independent yet less diverse along gender, racial and ethnic lines, according to a new report, The Impact of Shareholder Activism on Board Refreshment Trends at S&P 1500 Firms.
Commissioned by the Investor Responsibility Research Center Institute (IRRCi) and undertaken by Institutional Shareholder Services, Inc. (ISS), the report examines hundreds of new directors who joined S&P 1500 company boards as a result of activist campaigns over the study period from 2011 through 2014. Activist investors typically favored nominees with financial experience, while incumbent boards favored nominees with executive experience. In all, some 380 new board candidates were put forth during those four years as a result of activist efforts.
The report also provides in-depth data on the boardroom impacts of activism in a number of areas. For example, with regard to board diversity, the analysis reveals study company boards were less likely to have at least one female director following an activist campaign than they were preceding one, decreasing from 87.1 percent to 82.8 percent. Similarly, the analysis finds that company boards were less likely to have at least one minority director following an activist campaign as compared with preceding one, resulting in a four percentage point decline to 51.6 percent.
“If you want to ignite a heated discussion, just bring up the topic of shareholder activism,” said Jon Lukomnik, IRRCi executive director. “But lost in the debate is the impact that activism has on corporate boards. The new report closes that gap with the first deep dive on the implications of dissident campaigns on corporate boards. What we’ve found is a bit of a mixed bag – there is more financial expertise and independence, but also less diversity.”
"Activism has emerged as one of the biggest drivers of board refreshment at S&P 1500 firms," said ISS Special Counsel and report co-author Patrick McGurn. "Shareholders and directors need to better understand the significant boardroom transformations that occur when activist investors target companies."
Among the key findings of the report are that activism:
- Drives down director ages and tenure. The average age of directors at target companies decreased from 62.2 to 59.6 years while tenure decreased from 9.5 to 6.1 years.
- Erodes gender diversity. The number of boards at target companies with at least one female director decreased from 87.1 percent to 82.8 percent. During the same period, the overall corporate trend was in the opposite direction; the number of companies in the S&P 1500 with at least one female director actually increased from 72 percent to 82.7 percent.
- Erodes ethic/racial diversity. The number of boards at target companies with at least one minority director decreased from 55.9 percent to 51.6 percent. As with gender diversity, the broader corporate trend differs with the number of companies in the S&P 1500 with at least one minority director actually increasing from 53.5 percent to 56.8 percent during the study period.
- Slightly increases board size from an average of nine to 9.4 directors. In all, 41.9 percent of target companies increased in size post activism, while 18.3 percent of target companies experienced a decrease in board size.
- Boosts boardroom independence. About 79.5 percent of board members were independent pre-intervention, compared with 83 percent post.
The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research enabling investors, policymakers, and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased, and disseminated widely. More information is available at www.irrcinstitute.org.
Institutional Shareholder Services Inc., is a leading provider of corporate governance and responsible investment solutions for asset owners, asset managers, hedge funds, and asset service providers. For more information, please visit www.issgovernance.com