Update on current board issues: January 2013

Issues in brief

PwC’s Annual Global CEO Survey: US executives redirecting investments

Directors can gain valuable insights by listening to what CEOs are saying. This year will be a pivotal one for CEOs around the world, according to PwC’s 16th Annual Global CEO Survey. The 167 US CEOs that participated in our survey are honing their approaches for 2013 by focusing on organic growth, their customers, and more effective operational models. They are redirecting investments and strategies against a backdrop of global fiscal and economic uncertainties. US CEOs expressed less confidence for growth in the next year, but they are optimistic about the longer-term. And, they are focused on building resilient organizations and setting the foundation for long-term growth.

US CEOs are concentrating on three key areas:

Building resilience to disruption – CEOs are seeking to increase their companies’ ability to swiftly respond to demand changes by collaborating with partners more closely or by diversifying to best ensure uninterrupted business operations through a range of scenarios.

Taking the home-field advantage – CEOs are planning to consolidate advantages on their home turf. They’re considering domestic deals, and 41% see expanding their customer base in the US as the main avenue for growth in 2013.

Siding with the customer – CEOs are setting the customer as their beacon to build businesses that last. Getting the right read on changing customer demands will help on a number of fronts: where manufacturing is located; where to consider acquisitions; how to spend precious research and development funds; and where to form alliances to extend competencies.

Ethics are important to US CEOs – 50% said they’re increasing their focus on supporting a culture of ethical behavior. Transparency is also top of mind: nearly one-third of CEOs said they plan to increase their focus on non-financial reporting, giving stakeholders a better view of the company’s worth and the value it contributes to society. CEOs also acknowledged that many stakeholders influence their business strategy, from local communities, social media users, industry competitors, and peers to governments and regulators. And they’re planning to strengthen engagement with a majority of their influential stakeholders.

For more insights into what CEOs are thinking, see our 2013 US CEO Survey.

Message to directors: Get more social in the IT space

Should directors be more than observers of their companies’ IT and social media plans? Due to rapid growth in those areas and their importance to the business model, some are suggesting that directors engage in social technology and look to understand the difference between IT governance and social governance.

“If you look at IT systems, you now have a technological component and clearly a behavioral component”, Bob Zukis, chair and CEO of Saaskwatch Systems, said during a recent Governance Watch webcast hosted by The Conference Board’s Governance Center. Zukis, who is also a senior fellow at The Conference Board and sits on several boards including the National Association of Corporate Directors Southern California chapter, explained that IT governance is a subset of the technological component while social governance is a subset of the behavioral component.

Barry Libert, a board advisor to Parametric Dining LLC and and board member on Fairleigh Dickinson University’s Rothman Institute, said not to forget the importance of social governance. Libert joined Zukis on the webcast. For more on the webcast, click here to read The Conference Board Governance Center Blog.

“Social [media] has not been part of business in the past”, Libert said. “Social [media] can make leadership realize it is part of the trust equation [with stakeholders]. If they want more sales, leadership has to realize it is in social relationships.”

Directors who are not experts in social media need to understand at a minimum how to “listen” to the social conversation, Libert said. There are tools that can provide metrics to directors and management and they are becoming cheaper and more accessible. But boards and management need to understand what is being said about their organizations and, where possible, get out in front of the issue with a meaningful response by getting engaged in the conversation, he said.

One tool is PwC’s recent book, Directors and IT: What Works Best™. It has a framework that boards can use to help with their oversight duties. A chapter in the book states that directors are increasingly interested in knowing how executives are using new IT platforms to communicate, what data is being captured, and how it is being used. Directors are even considering how they can personally benefit from using new technology platforms like tablets.

Political spending, board declassification issues still hot

Two issues that highlighted the 2012 proxy season do not appear to be going away anytime soon. Political spending disclosure and board declassification (annual election for all board members) are already on the 2013 radar for many public companies, their investors, and the SEC.

The SEC recently made public its intention to consider a proposed rule that would require public companies to disclose their political spending. The agency updated its entry in the federal Office of Management and Budget’s Unified Agenda. [Read notice here.]

More than a year ago, a group of professors filed a petition with the SEC seeking a disclosure rule on political spending. Following the SEC’s decision, the co-chairs of the petitioning group of professors, Lucian Bebchuk of Harvard Law School and Robert Jackson of Columbia Law School, wrote in a Harvard Law School blog post: “A significant amount of corporate political spending currently occurs under investors’ radar screen, particularly when public companies spend shareholder money on politics through intermediaries, who are never required to disclose the source of their funds. Investors clearly want to receive information about such spending; shareholder proposals requesting information on political spending are now the most common proposals at public companies.” [Read the full post here.]

Meanwhile, the U.S. Chamber of Commerce, in a 30-page letter to the SEC on January 4, wrote: “This end-run around the legislative process would be improper in any context; it is especially improper given Congress’ established practice of addressing these issues itself and the Commission’s lack of expertise in the area of political and lobbying expenditures.”

The Chamber went on to state there is "no rational and non-arbitrary justification" for a rule requiring only public company disclosure not required under generally-applicable laws. The Chamber adds that costs to public companies and their shareholders would be "substantial".

As for board declassification, the Shareholder Rights Project (SRP), which is led by Bebchuk, has filed 74 shareholder proposals at S&P 500 and Fortune 500 public companies for the 2013 proxy season. The SRP has filed the proposals to have those companies move to annual director elections on behalf of eight institutional investors.