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Inmet Mining chairman David R. Beatty: 'The day of the gifted amateur is gone.'

The faces around board tables in Canada are changing, and at a faster pace, as major corporate boards take advantage of a period of high director turnover to remake themselves.

Boards are adding more people with specific industry expertise – rather than business generalists – as well as more first-time directors and far more female directors, according to a new study of 100 of Canada's largest company boards by executive search firm Spencer Stuart.

Boards traditionally have shifted their makeup slowly, often adding one new director every year or two. But a lot of boards have had a high level of turnover in recent years, driven in part by demographics as a bulge of directors hit mandatory retirement ages, but also the result of the higher workload and greater responsibilities facing directors, Spencer Stuart search consultant Andrew MacDougall says.

It is still rare for directors to be asked to leave boards, Mr. MacDougall says, but a significant number are deciding to voluntarily step down as they get older because they feel the workload for major boards has become too great to do the job casually in retirement.

"They feel they've made a contribution, and they still have to ratchet it up quarter after quarter," he says. "It's a hard job, and it's arguably becoming harder."

According to Spencer Stuart, the director turnover rate in the past five years has been 33 per cent, which means one third of board seats have changed hands at the top 100 companies. Twenty-one per cent of companies have had turnover rates greater than 50 per cent in that period, resulting in an almost "complete rebuilding" of some boards, the report states.

AbitibiBowater Inc. is an extreme example, completely rebuilding its board within the past five years amid a filing for bankruptcy protection in 2009. Manulife Financial Corp., which had a bulge of directors hit retirement age at the same time, has added 11 of its 18 directors over the same period, while BCE Inc. remade its board following a failed takeover attempt in 2008 and has appointed nine of its 13 directors in the past five years.

Canadian Imperial Bank of Commerce has added eight of its 16 directors in the past five years, and now has just two directors with more than 10 years tenure on the board.

An analysis of the new people joining board ranks over the past five years shows some significant changes in director profiles. While boards traditionally have embraced "generalists" with broad business backgrounds, that trend has shifted in the past decade as companies feel pressure from investors to ensure boards have more specific expertise.

Boards now have an average of four directors who are experts in that company's industry area – not including directors who are members of company management. Fifteen years ago, the top 100 companies averaged one industry expert per board excluding management, and one-third of boards had no industry experts, the survey shows.

Shareholders are helping drive the shift, pressuring technology companies like Nortel Networks Corp. in the mid-2000s, and more recently Research in Motion Inc., to add some technology experts who can better understand whether a company is staying current and competitive. Financial services companies faced pressure from shareholder groups like the Canadian Coalition for Good Governance to add directors with expertise in risk management after the financial crisis in 2008.

Inmet Mining Corp. chairman David Beatty, who is also chairman of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto, says experts are becoming increasingly important as boards try to keep abreast with industry changes. Boards should have at least one or two industry experts even at the expense of greater board independence, he says.

"The day of the gifted amateur is gone," he adds.

Large boards are also actively seeking women directors to improve their diversity, the survey shows. While 17 per cent of new directors added in 2007 were women, that number climbed to 29 per cent in 2011, marking the highest level recorded by Spencer Stuart in 15 years of charting board trends.

Despite the additions, women comprise just 15 per cent of directors at Canada's top 100 companies – the same proportion as U.S. companies of the same size.

Mr. MacDougall says it appears the shift to more women is still largely coming from major corporate boards, and that the next tier of mid-sized boards has not changed as much on the issue. The largest companies typically lead governance trends, so their actions could result in a broader shift in coming years, he says.

The study found 36 per cent of women who joined boards last year were U.S. residents, and that half of those female cross-border recruits were industry experts. The U.S. has a larger pool of women executives with industry expertise, and fewer of them have conflicts with Canadian companies, such as working for a direct competitor, Mr. MacDougall says.

The desire for female directors has helped bolster the proportion of new directors who have not previously sat on a corporate board. More than 30 per cent of directors appointed last year were first timers on corporate boards, an increase from 23 per cent five years ago.

More than one in five new directors appointed last year were "C" level executives who were not CEOs – including chief financial officers or chief operating officers – as part of a shift forced by the shrinking pool of CEOs willing to sit on multiple boards. Just 42 per cent of new corporate directors added last year had CEO backgrounds, the lowest level in the past six years.

Pay levels for directors also rose by 10 per cent in 2011 to a median retainer level of $110,000 – after two years of flat pay in 2010 and 2009 – as companies vied to attract global business leaders to their boards.

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