A complex compilation of challenges have had broad impacts on companies, from their employee base to the executive suite—all the way up to the boardroom. And according to new research from professional services firm PwC, board directors are taking note.
The annual PwC Corporate Directors Survey gauges the views of public company directors from across the United States on a variety of corporate governance matters. In 2021, 851 board directors participated the study, representing a cross-section of companies from over a dozen industries.
Results from the survey reveal that corporate boards are driven to create a new playbook to take on the change brought about by the ongoing COVID-19 pandemic, fluctuating financial and labor markets, increasing political division, and growing demands for social justice. Here are six areas that directors say are calling for board focus.
Invest more time and resources in board ESG oversight
ESG discussions have taken hold of boardrooms. The survey found that ESG is the top issue shareholders want to discuss with directors, and many boards have work to do to bring directors up to speed. While ESG is a critical area of board oversight, only 25% of directors say their board understands ESG risks very well.
So, what’s the solution? Some boards are forming new committees to focus on ESG. It is a viable option, but not necessarily a required one. The key to investing more time and resources into ESG oversight is to give the topic sufficient attention and time on the boardroom agenda, providing directors with the education they need. According to the survey, 62% of companies with over $5 billion in revenue states that ESG is regularly on their board’s agenda, compared to 38% of companies with under $1 billion in revenue.
Connect ESG to company strategy
The most critical part of tackling ESG is to embed its long-term objectives and challenges into overall company strategy. Almost two-thirds of directors (64%) now say their strategy is tied to ESG issues—a 15-point jump from last year, and a strong indicator of how quickly things are changing. For the 36% of directors whose boards are not doing this yet, now is the time.
One way to enforce the connection is by tying executive compensation to non-financial metrics. More than half of directors (54%) now believe that ESG issues have a financial impact on company performance, and more than half also support tying executive compensation to goals relating to customer satisfaction, safety, quality, and employee engagement. But the survey notes that while a growing percentage of directors support these ideas, relatively few companies are doing it. Still, it is the responsibility of board members to incorporate non-financial activities in company priorities.
Prioritize talent management oversight and the future of work
The ongoing COVID-19 pandemic has radically changed the approach of talent management and our vision of the workplace. To be in a position to compete, companies need to attract the best talent. According to directors in the survey, overseeing talent is the area that most demands additional board time. In many cases, this has resulted in the board getting involved in ways they haven’t in the past.
- Nearly three-quarters of directors (74%) say board-level discussions on human capital or D&I strategy have increased.
- Almost half (47%) say their company is investing in upskilling or retraining employees.
- Almost as many (46%) see changes in their companies’ approach to recruiting and hiring.
- Only 8% of directors tell us that their companies have not taken any action to address these issues.
Much of the focus from board directors has been on issues like corporate culture, gender and racial pay equity, and opportunities made available to a broad workforce. It is crucial that board directors be part of the decisions about how the company’s workforce strategy may evolve in the future—and how it greater diversity and inclusion among the workforce. How a company addresses these challenges can make a difference in how they are seen by employees.
Tackle board diversity through refreshment
Directors see that board diversity is a problem that needs to be addressed. And unlike a few years ago, most directors (71%) now think that the board diversity problem won’t solve itself. So, they are taking matters into their own hands.
- More than 9 out of 10 directors (93%) say their board has taken action to diversify over the previous 24 months.
- The most common change they have made is to replace retiring directors with someone who brings greater diversity to the board (69%).
- One-third of directors (33%) say they are increasing the size of the board, at least temporarily, in order to further diversify.
The survey results reveal that board directors can make significant improvements to diversifying their composition by setting goals—for two, three, or four years from now—and creating an internal succession plan to get there.
Double down on board assessments
Board, committee, and individual director assessments are a critical piece of the puzzle for boards looking to improve. According to the survey, almost half of directors (47%) think that one or more of their fellow board members should be replaced. The majority of directors (88%) say their board has an effective assessment process, with almost three-quarters of directors (72%) saying their board made changes as a result. The three most common actions were:
- Adding additional expertise.
- Changing board committee composition.
- Diversifying the board.
But there are still limitations. Two-thirds of board directors (67%) say it is difficult to be frank in the assessment process, and more than half (52%) say it is too much of a “check the box” exercise.
Re-examine board priorities
When asked which areas of board oversight demand more time and attention, 34% of directors agreed that talent management tops the list. But beyond that, the survey shows a range of different priorities from board directors—a key indicator that directors need ample time to come to a consensus about where to focus next.
The key takeaway
Addressing these areas in 2022 and beyond will help board directors push their organizations forward and, ultimately, enhance their overall corporate culture in the process. To learn more about the value of board engagement and the influence of boards in shaping culture, check out these additional resources: