Software Boards Report - Summary of Recommendations
Topic One: Education
1. Turbo Charge Your Board’s IQ: Consider adding to your board:
- Highly educated board members with multiple degrees. 78 percent of the board members earned at least one graduate degree and 44 percent hold a double graduate degree.
- At least one Ivy League graduate - At least one board member in nine out of ten companies has an Ivy league degree
2. Blend Technical and Business Expertise:
- 46 out of 72 (nearly 64 percent of board members) have a non-technical degree.
Topic Two: Functional Experience
1. Hire Experienced Board Members: Many board members sit on multiple boards and as a result understand the nuances of serving on a board.
2. Recruit “Grey Hair”: As retirement age comes too fast for many, these individuals stay current by being on multiple boards and have the advantage of being able to dedicate more time than an operating executive.
3. Include a Mentor CEO: Many Companies hire CEOs who have "been there and done that" and can provide invaluable advice and second opinions to the sitting CEO
4. Consider Investment Professionals: Investment professionals have strong representation on these boards, either as the legacy investment professionals who helped companies get there, as current major shareholders, or as advisors to the CEO on investment matters
5. Analyze and Add Required Skills: Fast-growth companies have a multitude of other functional areas, such as legal, IT, consulting, general managers and finance.
Topic Three: Industry Experience
1. Leverage People with Multiple Industry Experiences: The largest “industry background” category in our study was made up of people with experience in multiple industries. This is a fantastic grounding for any board because it offers individuals that can bring multiple perspectives to the table.
2. Value Software Industry Experience: A healthy second industry background category is the software industry itself. Of course, individuals with software experience enable a better understanding of the nuances of the field and its competition.
3. Include a Wide Variety of Backgrounds: Other than the financial industry, the rest of the board members in our study have a wide variety of backgrounds, from mining to legal to computer hardware and telecommunications services.
Topic Four: Size of Boards
Boards range from six to fourteen members, with an average of eight members and a median of seven members. The number of board members should not be solely determined by the size of the company, but also by the complexity of the task at hand and requirements for the board to fulfill its role. We believe a number between seven and eight board members is ideal for most companies. Eight board members is one more than what we see for similarly sized companies in Silicon Valley.
Topic Five: Age
While the range is wide (33 to 71), the average and median ages are 56 and 58. This is consistent with technology companies in Silicon Valley, with an average age of 59. The average age of independent directors at S&P 500 companies is 62.
Topic Six: Gender Diversity
There are only 6 female directors grouping the companies we studied, compared to 74 male directors. What’s more, five of the six female directors serve outside of the United States. This is not representative of the Silicon Valley Companies. Companies over $250 million and under $500 million in the Valley have 22 percent female representation, while companies over $500 million and under $1 billion have 33 percent female representation. The availability of talent paired with the limited resources these companies may have in recruiting qualified female board members makes the numbers less than stellar.
Perhaps the availability of qualified female executives is more predominant in Silicon Valley than in some of the locations our studied companies are headquartered. Nevertheless, the record here allows for plenty of improvement.
Topic Seven: Long Board Tenures and Short Board Terms
Board tenures in our group are lengthy, while the actual terms are quite short. This indicates that the teams may have been built correctly and that, while there is some movement (almost every company has changed or added a board member in the past five years), there is a stability and gelling of the teams and a healthy mix of fresh blood. On the other hand, it may be that the teams are not ideal but due to the stellar performance of the company, poor performers are not addressed. Short terms do not ensure swift action on poor performers but certainly are congruent to a regular evaluation schedule. Board evaluations are being more and more formalized. We predict there will be more movement of board members as board evaluations become more and more prevalent.
Topic Eight: Remuneration
1. Total compensation for a board member is generous but varies highly, from $46,000 to $972,000 for North American companies. The median total compensation is $193,400.
2. Cash retainers vary from $13,750 to $260,000 with a median of $60,931. So, at the median, roughly one third of the compensation is in cash at these companies.
3. Location plays a key role in compensation. It is counter-intuitive, but it seems technology hotbeds pay less for their board members than other locations. Perhaps the competition for local talent within technology hotbeds, the availability of “informal” advisors in technology hotbeds, and the desire to attract star board members for remote locations is more pronounced.
4. Stock awards and option awards make the balance of the compensation picture
5. Most companies offer a cash compensation structure that allows for a retainer plus a per meeting fee.
One additional observation is about the geographic location of our sample. Only six of the top 10 fastest growing software companies are in the United States, two are in India and one each is located in England and Canada. What’s more, three of the top five are located outside the United States. This may demonstrate what the Georgia Institute of Technology’s School of Public Policy warned of in 2005. With the global landscape for science and technology changing there is increased competition for resources and recognition and the U.S. may not be able to retain its innovative edge in the world as Asia begins to emerge.