BoardroomDirect® Update on the current board issues: October 2014
At a glance
2014 Annual Corporate Directors Survey: Trends shaping governance and the board of the future. The full report addresses board performance, diversity, practices, priorities as well as IT and cybersecurity oversight, strategy and risk oversight, and executive compensation and director communications.
“We structured this year's survey to gauge director sentiment on a number of key governance trends shaping the board of the future,” said Mary Ann Cloyd, Leader of PwC's Center for Board Governance. “As directors continue to face scrutiny from investors, regulators and other stakeholders, board practices remain in the spotlight.”
Among the board practices that have the attention of more directors are those regarding IT. “Over the past few years, we've seen significant changes to board practices regarding IT oversight and cybersecurity,” Cloyd said. “There is increasing recognition that IT is a business issue, not just a technology issue.”
The 863 public company directors that participated in the survey represented nearly two-dozen industries. Seventy percent serve on the boards of companies with more than $1 billion in annual revenue. Highlights from the survey include:
Board priorities and practices
Sixty-two percent of directors want at least some additional boardroom time and focus on strategy. Sixty-five percent of directors want at least some increased focus on cybersecurity and 47% want more attention on IT strategy.
Nearly one-in-three directors say their board has interacted with an activist shareholder (and held extensive board discussions about activism) during the last 12 months.
Ninety-one percent believe their self-evaluation processes are at least somewhat effective. However, a majority of directors have a difficult time speaking their minds – 70% say it is at least somewhat difficult to be frank in their self-evaluations and nearly one-in-five think it's very difficult.
Board performance and diversity
Fifty-eight percent of directors now say that negative voting of less than 25% would cause them to be concerned about re-nomination, compared to less than half last year.
Thirty-six percent of directors say someone on their board should be replaced – a jump from 31% two years ago.
The percentage of directors who see impediments to replacing an underperforming director grew to 53% from 48% last year.
More than 60% of female directors described gender diversity as very important, compared to only one-third of their male counterparts.
IT and cybersecurity risk
More than one-quarter of directors say they are not sufficiently engaged in the areas of big data and cloud technologies. And, only 53% of directors indicate their company’s IT strategy and IT risk mitigation approach even “moderately” takes sufficient advantage of big data.
Forty-one percent of directors say they are now at least moderately engaged in overseeing the company's monitoring of social media for adverse publicity – compared to 31% in 2012. There was also an 11 percentage point increase in directors who say they are at least somewhat moderately engaged in overseeing employee social media training and policies.
Nearly half of directors have not discussed their company's crisis response plan in the event of a security breach and more than two-thirds have not discussed their company's cybersecurity insurance coverage.
Strategy and risk oversight
Fifty-one percent of directors say their board understands the company’s risk appetite “very well” — a drop of 11 percentage points from two years ago. This may be due to any number of factors including uncertainty about the impact of new technologies and risks on the business, an increasingly dynamic global economy, political uncertainty and an active M&A environment.
Over 90% of directors are at least somewhat satisfied with the information they get to fulfill their strategic oversight responsibilities. However, more than one-quarter of directors are either dissatisfied or do not receive information on competitor strategy and customer satisfaction research.
Executive compensation and director communications
Eighty-four percent of directors at least somewhat agree that “say-on-pay” voting caused their board to look at compensation disclosures in a different way, and 83% say it at least somewhat increased the influence of proxy advisory firms.
Director communications with stakeholders increased across all constituencies. Particularly noteworthy is that 30% of directors say they enhanced communications with the company's employees—the largest year-over-year increase of any individual stakeholder group. Also, a greater percentage of directors are communicating with institutional investors, as 66% now say they do so, compared to 62% last year.