Web Behind the Ears?

SAN FRANCISCO (05/05/2000) - Internet board of directors have far less experience and outside perspective than their offline counterparts, which might make dot-coms ill-equipped to deal with stock-market volatility, according to a new study by executive search firm Spencer Stuart.

The firm analyzed the boards of 100 public Internet firms and found that nearly one-third of directors are also company employees. This figure is in contrast to the boards of the S&P 500, where only one-fifth of directors are company employees.

Moreover, the nonemployees serving on Net boards are often venture capitalists.

According to the report, these individuals are given board seats because of their large investments rather than their ability to guide a firm. Venture capitalists also tend to have a shorter-term perspective than other shareholders, according to Spencer Stuart. Although glorified in the media, the relative youthfulness of Web-business employees might be a downside for Net company boards. The study found that 25 percent of employees who serve as directors are under age 40.

Although nonemployee directors of Net firms average 51 years of age, they are still an average of 10 years younger than their counterparts on S&P 500 boards. Spencer Stuart also found that Net firms are appointing directors from a small pool of industries. More than two-thirds of nonemployee directors at Net firms are from financial services and technology-related industries, which creates boards largely devoid of diversity. While Net firms have had no trouble attracting new board members with grants and options, that model might not be sustainable given the uncertainty of current markets.

More than 75 percent of Internet boards do not pay their directors cash retainers, compared with less than 1 percent at S&P 500 boards. Grants and options are attractive in a booming market, but Internet companies might find it difficult to find capable directors in uncertain times.

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