Boards of directors of public companies are under intense scrutiny today throughout the U.S., with all the talk about improving corporate governance. Boards are being asked to assume a much more active role in changing top corporate management and holding it accountable. This year for the first time, the Houston office of Spencer Stuart, the international executive recruitment firm, has surveyed 29 of the largest energy companies in the U.S, exclusively for Oil and Gas Investor, to find out what their policies are for boards. The companies included range in size from ExxonMobil to small-cap producer Edge Petroleum Corp. The survey used 2003 data, the latest available when the survey was compiled. As the make-up of boards has grown more independent, they have become more aggressive in making changes in the corner office. They are no longer willing, if a chief executive fails to meet goals, to wait and see if the company has better luck next year. In January 2005, 103 substantial American companies in various industries announced chief executive changes, the most for any month in four years and the first total greater than 100 since February 2001, in the depths of the high-tech bust. Another sign of the times is the fact that about 20% of Spencer Stuart's current business in Houston involves recruiting directors. In almost every case, these searches are being managed exclusively now by the board's nominating committee, not by the top management of the company. Board traits, compensation What is the nature of the boards in the energy industry? In general, they mirror the boards of the largest public companies in all industries. For example, this year's S&P 500 national Spencer Stuart board survey revealed that these companies now average 80% outside or independent directors. The same holds true for the 10 largest energy companies in the survey for Oil and Gas Investor. Overall board sizes are similar as well. S&P 500 companies average almost 11 directors; the top 10 energy companies averaged almost 12 directors. The average age is also similar: 61 for the S&P 500, with a range from 50 to 74, and 62 for the top 10 energy companies. Average cash compensation for both S&P 500 companies' directors and those of the top 10 energy companies is identical at $62,800 per year, although retainers for energy directors range from $100,000 at XTO Energy to $10,000 at Edge Petroleum. Compensation is growing for several reasons. More is expected of board members today and they face liability issues that were once unthinkable. It is becoming more difficult to recruit talented directors because sitting CEOs are serving on fewer outside boards, and some otherwise qualified candidates are choosing not to serve because of the increased risks and time commitment. Many questions have arisen as to how to qualify a potential director as a financial expert. If a candidate has been chief financial officer of a small public company, does he or she qualify as a financial expert for a larger public company? What about candidates whose main claim to financial expertise is a background in commercial or investment banking? Standard questionnaires for directors and officers of a public company may need to be supplemented by a questionnaire for anyone who wishes to qualify as a financial expert. The encouraging news? Board practices of the 29 energy companies surveyed are more closely resembling the best corporate governance practices of the nation's largest companies. Recent data indicate that companies that have done their homework on corporate governance tend to have a better stock performance as their reward. -Billy Bauch, Tom Simmons; Spencer Stuart, Houston