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OC Versus National Boards: Smaller, Less Gender Diverse

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How do boards of directors from Orange County public companies shape up when compared to those of the nation’s largest  public companies? Cal State Fullerton’s Center for Corporate Reporting and Governance recently completed a study comparing board policy, procedures and compensation with those nationally.

“Corporate boards of directors play an enormous role in corporate governance. If they are not competent and diligent, it can affect company performance outcomes,” said Vivek Mande, director of Cal State Fullerton’s Center for Corporate Reporting and Governance. “Orange County is now a hub attracting diverse types of businesses to the region. This study provides important clues to how Orange County boards are performing, what is similar and what is different from other boards across the country.”

The study analyzed boards from 62 public firms in Orange County and compared the results with similar analyses of boards of the 100 largest U.S. public companies. Working on the study with Mande were Myungsoo Son, CSUF professor of accounting and a center fellow, and a research team of graduate students.

While there “is no one size that fits all” in discussing corporate governance, Mande noted that there are some areas where O.C. boards compare well with those nationally, including the separation of the roles of chairman and CEO, and board size.

Smaller often is better when it comes to board effectiveness, he explained, citing studies that say the optimal is between eight and nine members. The most popular board size at Orange County firms is six, he noted. Among the top 100, the most popular is 11.

Similarly, within the largest 100 firms, 37 percent of companies have a CEO that does not serve as board chair. In Orange County, 58 percent have a chairman independent of the CEO.

In other areas, O.C. boards can do with improvements. Mande noted board diversity and independence.

“Gender diversity is a concern for corporate boards all across the country, but it is more acute in Orange County,” he says. “While surveys of board directors overwhelmingly show that diversity is a positive influence to performance outcomes, there is also concern that the pool of qualified candidates is limited.”

Only 16 percent of board members of S&P companies and 22 percent at the 100 largest public companies are women, according to the study.

In Orange County, the percentage drops to 9, with only one OC corporate board of directors having more than 30 percent women on its board. Half of those included in the study “have no women on their boards.”

On the issue of shareholder democracy, the CSUF study noted that 94 percent of the nation’s 100 largest companies largest and 85 percent of S&P firms have adopted majority voting. In Orange County, however, only 35 percent of those analyzed had done so.

Finally, on the issue of board independence, the researchers noted that when compared to the nation’s largest companies, OC firms appear to be less independent.

“Board members must be capable of independently evaluating the company’s business strategy and CEO performance,” explained Mande.

“Two widely cited characteristics of effective boards are independence and expertise,” said Myungsoo Son, the co-author of the study. “Compared to top 100 companies, O.C. companies have a fewer number of independent board members, and fewer financial experts on audit committees. These findings, along with evidence that O.C. boards receive lower compensation than their nationwide counterparts, can impair board effectiveness,” concluded Son.

Discussion of the report and its findings will be continued during a session, “Inside Perspectives of the Boardroom” during the Center for Corporate Reporting and Governance 15th annual SEC “Hot Topics” Conference Sept. 16 at the Irvine Marriott. More information about the upcoming event can be found on the center website.

The Center for Corporate Reporting and Governance was established in 2003 within the Mihaylo College of Business and Economics to address corporate reporting and governance issues facing companies and their auditors in the changing financial environment. It trains and educates corporate boards, accounting professionals and investors on topics related to ethics, accountability, financial reporting and governance, and is accredited by Institutional Shareholder Services, a provider of proxy voting and corporate governance services. The center also is registered with the National Association of State Boards of Accountancy.