Boards Trend Toward ‘Nonstandard’ Committees and Skills

From the introduction of new and rapidly advancing technologies, such as artificial intelligence (AI), to elevated attention—both positive and negative—paid to environmental, social, and governance (ESG) issues, boards seem to be taking note of the current upheaval in the business environment and are making relevant changes to their composition and structure. For example, the most recent group of director appointees to Russell 3000 company boards had a higher percentage of board members with technology, human capital, ESG, cybersecurity, and digital skills than the most recent group of retiring directors, according to the NACD 2024 Inside the Public Company Boardroom report. Even so, the growth of female representation on Russell 3000 boards showed signs of slowing.

The NACD 2024 Inside the Public Company Boardroom report analyzes data pertaining to Russell 3000 companies in 2023. Below are some of the key pieces of data revealed about the structure and composition of these boardrooms.

The Rise and Fall of Nonstandard Committees and Skills

Beyond the audit, compensation, and nominating and governance committees that most public companies are required to have, executive and finance committees have been somewhat popular additions to board structures. In 2019, for example, 20 percent of Russell 3000 boards had executive committees and 11 percent had finance committees. Over the past five years, however, these rates of prevalence have steadily declined. The use of executive committees has declined by one percentage point each year to 16 percent of the Russell 3000 having such a committee in 2023; last year, only 9 percent of Russell 3000 company boards had a finance committee.

While these more traditional nonstandard committees experienced a decline in usage, the prevalence of environment, health, and safety committees saw a slight uptick in 2023 to appearing at 5 percent of Russell 3000 companies.

Mirroring the fluctuating prevalence of nonstandard committees, incoming directors possessed a lower percentage of more traditional boardroom skills than their departing peers. While 69.2 percent of departing board members possessed management and strategic vision skills, 62.1 percent of 2023 appointees had the same. Furthermore, 60.5 percent of outgoing directors had finance skills compared to 55.9 percent of appointees, 33.9 percent of departing directors had investor experience compared to 28.1 percent of appointees, and 22.5 percent of departing directors had industry and operations experience compared to 17.6 percent of appointees.

Meanwhile, 2023 board appointees possessed incrementally higher percentages of nontraditional expertise in areas such as human capital, ESG, and cybersecurity than board members who departed Russell 3000 boards last year. For example, 41.6 percent of 2023 appointees had technology skills compared to 38.1 percent of outgoing directors, and 6.1 percent of appointees had ESG skills compared to 4.4 percent of departing directors. In addition, 5.1 percent of appointees had cybersecurity expertise compared to 4.5 percent of departing directors, and 3.9 percent of appointees had digital skills compared to only 2 percent of departing directors.

This trend toward appointing directors with more nontraditional and specific areas of expertise comes at a time when boards are acknowledging the importance of newer areas of oversight as well as a lack of skills needed to effectively oversee them. As an example, 58 percent of directors say that their boards’ prioritization of ESG issues has increased while only 21 percent of directors say that their boards are “very effective” at integrating ESG into company strategy, according to the 2023 NACD Public Company Board Practices and Oversight Survey.

Women in the Boardroom

As noted above, boards are recognizing the need for different skill sets and backgrounds around the table. But at a time when companies are facing backlash against diversity, equity, and inclusion initiatives and the ramifications of the US Supreme Court rulings that rolled back affirmative action, companies may have found it difficult to prioritize gender diversity when selecting board candidates.

Overall, 27.8 percent of directors in the Russell 3000 are female. This percentage has steadily increased over the last seven years, from 15 percent in 2017 and 27 percent in 2022. However, the rate of increase of women in the boardroom slowed between 2022 and 2023. While there was a 2 or 3 percent increase in the share of women directors each year from 2018 to 2022, there was only a 1 percent increase between 2022 and 2023.

Gender diversity in the boardroom continues to see improvement, but the slowed pace of growth indicates that the benefit of having board diversity may need to be reinforced or better communicated.

In this disruptive era of business, public company boards can use the key takeaways from the NACD 2024 Inside the Public Company Boardroom report to assess whether their organizations are keeping pace with—or outperforming—their peers.