Complying with corporate governance regulations is costing companies across the globe hundreds of million of pounds a year and discouraging people from becoming board directors, according to a new report.
The 31st Annual Board of Directors Study, by headhunters Korn/Ferry International, interviewed 1,000 board members from 14 nations in the Americas, Asia Pacific, and Europe in order to quantify the impact of legislation such as Sarbanes-Oxley in the United States and the Higgs Report in the UK.
Virtually all (99 percent) of the U.S. respondents said their boards have complied with Sarbanes-Oxley at an average implementation cost of $5.1 million.
Eight out of 10 UK boards (81 percent) reported meeting the general independence rules of the Higgs and Smiths Reports, at an average cost of $1.5 million. The same proportion of French companies have spent an average of $910,000 to meet the recommendations of the Bouton Report.
If the companies also have securities listed in the US, the additional cost of the new financial reporting legislation there is put at $8.8m (ÂŁ4.7m) each.
But the survey also revealed that the harsher regulatory environment is putting off many from becoming directors.
The number of people refusing to join boards in the United States has doubled since Sarbanes-Oxley became law, rising from 13 per cent in 2002 to 29 per cent this year.
Almost a third (31 percent) of directors of German boards refused a directorship invitation this year, nearly triple the 11 percent who did so last year.
In Japan, almost a quarter (23 per cent) of directors have shunned board positions, while in the UK, half of those surveyed said they had turned down directorships.
But the increased burden of a directorship has brought with it increased rewards. The average annual retainer and fee per meeting for full-board service in the year to date was $56,970 - 22 per cent higher than last year's average of $46,640 and 32 per cent more than in 2002.
"As the demands put upon directors have risen dramatically over the past few years, it follows suit that compensation would also rise proportionally," said Charles King, head of Korn/Ferry's Global Board Services Practice.
"Keep in mind, most directors do not take a board seat for the money - they take it to make a difference."