New names, new focus
A new Korn Ferry study finds some revealing name changes that board committees are making to reflect a new business focus.
New names, new focus
Human capital. Sustainability. Innovation. These are all words that are cropping up in board committee names—and all with telling changes.
According to a new Korn Ferry study, boards are responding to pressure to address everything from social impact to supply chain by changing committee names — or adding new committees. Between 2016 and 2022, for instance, over 40% of S&P 500 compensation committee names were changed to include terms around human capital. During that same period, sustainability related terms jumped 164% as additions to existing committee names or as new standalone committees. “It’s an important signal as to what boards are focusing on both in and outside of their meetings,” says Anthony Goodman, head of the board effectiveness practice at Korn Ferry and an author of the study.
In its report, Korn Ferry examined board committee names for each company that has been in the S&P 500 continuously from 2016 to 2022, a total of 483 companies. The study looked at the names of the three standard board committees—audit, compensation and nominating and governance—as well as the creation of additional standing committees. Given that most of the detailed board work tends to take place in the committees, the goal was to understand how boards are adapting to and holding directors accountable for the expanded focus and agenda.
The results, says Goodman, underscore how purpose, supply chain woes, inflation, labor shortage, and climate issues have changed the expectations of corporate governance. For instance, as boards have evolved to focus on talent for the whole company rather than just compensation for the CEO and other top executives, companies have added terms like “people,” “talent,” and “culture” to compensation committee names. In fact, some companies removed compensation from the committee name altogether, renaming it the “human resources” or “human capital” committee.
By far the biggest change uncovered by the study was in the use of words like “sustainability,” “social responsibility,” or “corporate responsibility” in committee names. In 2016, only 50 companies out of the 483 companies analyzed, or 10%, used such terms. By last year, that number increased to 133 companies out of 483, or 28%. The number of boards now featuring sustainability-related terms in existing committee names or new standalone sustainability committees are nearly identical at 15% and 13%, respectively.
Goodman notes that companies are staying away from using the “ESG” acronym in committee names, perhaps because of its politicization. Despite the importance of ESG initiatives, only three companies out of 483 used the acronym in committee names in 2022. “The ESG acronym is misunderstood, and it can cause as much confusion as enlightenment,” Goodman says.
Technology as a name for existing or new committees also grew significantly over the last six years, reflecting the increasing focus on digital transformation. Between 2016 and 2022, there was a 50% increase in the number of companies with technology or a related term such as “innovation,” “cybersecurity,” or “data” in a committee name, from 50 companies to 75 companies, most of them in healthcare, financial services and technology itself. Still, says Goodman, the word technology doesn’t appear in any of the three standard committee names for any of the 483 companies analyzed. “It appears solely in the names of additional committees,” he says.
Underscoring how boards are expanding beyond their historical focus, the study found no growth in the use or creation of committees accountable for risk and finance despite ever-growing complexities in both areas. Only four companies out of the 483 analyzed added a risk committee between 2016 and 2022, bringing the total number to 64 companies. At the same time, the number of boards using a separate finance committee actually declined by eight over the same timeframe, to 139 companies from 147 companies.
There may be one new trend to watch, however. Goodman notes that no healthcare companies had a risk committee in 2016. But by last year, four had added one. The addition of risk committees to healthcare boards “could reflect the impact of the pandemic on their view of that topic,” says Goodman.
For more information, contact Korn Ferry’s Board Effectiveness practice or download the report.