Smaller, More Diverse and Independent Boardrooms - New Eversheds Report Identifies the Criteria for Company Success

By Eversheds Llp, PRNE
Sunday, March 6, 2011

Major new international study into boardroom culture investigates relationship between board composition, share price performance and company success before, during and after financial crisis

LONDON, March 7, 2011 - Smaller boards, more female directors and a higher proportion
of independent directors are the key boardroom components for company
success, according to a major new report released today (7 March) by
international law firm Eversheds.

The Eversheds Board Report is a forward thinking study which
analysed the performance of nearly 250 of the top companies in Europe, the
US, and Asia Pacific* between October 2007 and December 2009 to discover
whether board composition had any direct relationship to the company's
ability to weather the financial crisis.

While there were some regional differences - the best
performing companies were found in Hong Kong where there was an average of a
15.6% rise in share price compared to an average decrease of 29% in mainland
Europe - some global trends in boardroom success emerged.

Better performing companies had fewer directors in total on
their boards. While this was particularly true for Hong Kong and the US,
European companies, excluding the UK, appeared to suffer from having the
highest number of directors, averaging 19 directors in 2009. This is in
comparison with 12 directors in the US and 14 in Hong Kong, both of which
were more in line with the global optimum size of 11. Many of those surveyed
believed having a smaller board resulted in a greater focus on the issues,
better management from the chair, quicker decision making and better overall
dynamics between the board members.

The report also reveals that those companies who had more
female directors performed better during the financial crisis - this was
particularly so in the UK and in the banking sector. Although the proportion
of women on European companies' boards increased from 6.9 % in 2007 to 9.1%
in 2009, the ratio was still amongst the lowest across all the regions
identified in the report.

While the report showed that the more successful companies had
more female directors on their boards, when interviewed, only 55% of
directors thought that diversity for its own sake was beneficial for board
and company performance and only half that number was directly in favour of
taking positive action to appoint more women onto boards.

There is also a strong correlation between share price
performance and the number of independent directors on company boards, yet in
mainland Europe the ratio of independent directors remained low, with just
52% in 2009 compared with 87% in the US. When interviewed, directors narrowly
preferred independence to experience, however 67% believed both were equally

Substantial shareholdings - companies with higher percentages
of share capital held by shareholders who hold 3% or more of the issued share
capital - also proved a factor for success. In mainland Europe however, the
ratio of shares held by substantial shareholders was low, at just 25% in
2009, having risen slightly from 23% in 2007. Companies that performed better
during the financial crisis were significantly more likely to have a higher
number of shareholders with a substantial shareholding.

John Heaps, chairman at Eversheds, comments:

"Boardrooms across the world have faced extraordinary
challenges over the past few years. We undertook this major international
study to understand and respond to the challenges our clients are facing. We
also wanted to find out if trends could be identified that directly related
board composition to company performance during the financial crisis. The
financial crisis has forced many companies to think hard about the structure
of their boards."

Mark Spinner, corporate partner at Eversheds, adds:

"The major trends that emerged from our research certainly
generate debate, particularly when considering the relative success of the
more independent, diverse boards and the extent to which mainland European
companies have suffered in terms of their financial performance during the
crisis as a result of their board's not reflecting the optimum criteria.
Furthermore, many directors reported that there was a 'power shift', with
executive directors relying on the experience of non-executive directors more
than previously. However, the general consensus seems to be that this would
not be a permanent change - many directors believe now is the time for
non-executive directors to 'pull back' and allow the executive management
team to manage.

"Lessons should be learned from the factors that contributed
to company performance and it is clear that, where appropriate, more
streamlined, independent boards with a higher ratio of female directors could
be keys to future success."

*Research sample:

As part of this study, the performance of 241 companies was
examined from October 2007 and December 2009. The sample included:

    - UK: 75 companies from the FTSE 350 including the top 50 companies in
    the FTSE 100 by market capitalisation and 25 companies from the
    FTSE 250

    - USA: Top 51 by market capitalisation from the S&P100 in the

    - Continental Europe: Top 50 companies by market
    capitalisation from the EuroStoxx50

    - Asia-Pacific: 50 companies - 25 from the Hang Seng Index in
    Hong Kong and 25 companies from the S&P/ASX50 in Australia

    - The 241 companies included 50 banks

Between August 2010 and October 2010, 50 directors selected at
random from the 241 companies were also interviewed thus allowing both a
quantitative as well as a qualitative analysis of the results.

Notes to editors

About Eversheds LLP

Eversheds LLP and its world wide associate offices have over
4,500 legal and business advisers providing services to the private and
public sector business and finance community. Access to all these services is
provided through 46 international offices in 28 jurisdictions. Eversheds
combines local market knowledge and access with the specialisms, resources
and international capability of one of the world's largest law firms.

    Chantel Gohil
    For Eversheds LLP
    Tel: +44(0)207-919-4500

Chantel Gohil, For Eversheds LLP, Tel: +44(0)207-919-4500, E-mail: chantelgohil at

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