The collegiality conundrum: finding balance in the boardroom
Boards today are in a bind. Dissatisfaction with fellow directors is at a record high--but boards aren’t necessarily replacing the directors who aren’t measuring up. Generic and weak board refreshment policies are partly to blame. But the blame may also be due to the collegial nature of boards, where boards feel like a cohesive team and are reluctant to break up the group. While a certain degree of collegiality can encourage a productive, respectful setting, too much can hinder healthy dissent and debate--and board turnover.
Boards are making progress in other areas, however. Directors are more engaged on topics from cybersecurity to crisis management, and many boards are devoting more time to shareholder engagement. Our 2019 Annual Corporate Directors Survey highlights where boards are stepping up and where collegiality is clouding the board’s effectiveness. Read on to find out more.
In order for boards to be effective in their oversight roles, it’s critical that every director sitting at the board table participate and contribute at the highest level. That’s not always the case, according to a lot of directors. In fact, 49% think at least one fellow director should be replaced. And 23% say two or more should go. This trend in dissatisfaction with peers isn’t new, yet board turnover remains low.
Conducting individual evaluations is considered a leading practice for boards. And most directors (61%) say their boards are doing them. Even better, 72% say their boards have made changes in response to their last assessment process—up from just 49% in 2016. Still, many boards are focusing on some of the easier things to change, such as adding more expertise to the board or changing up committees, and avoiding the more difficult topics, like counseling an underperforming director or not renominating someone.
One of the most important roles of the board is to ask difficult questions. This is how directors can determine if the company is making good strategic decisions. To do so, directors need to be able to debate openly and honestly with each other. The desire for collegiality in the boardroom may be getting in the way, however. Forty-three percent of directors say it is difficult to voice a dissenting view on at least one topic. While too much debate can be unproductive, it’s critical that boards hear and consider contrary views, in order to come to the right decision.
Environmental, social and governance (ESG) issues have been big with institutional investors in recent years, but directors are getting tired of the topic. More than half (56%) of directors say investors are giving too much time and focus to ESG--nearly twice the percentage saying the same in 2018.
More than ever, directors agree that board diversity has benefits. Large majorities say that it brings unique perspectives, enhances board performance, improves relationships with investors and even enhances company performance. Despite the benefits, director support for board diversity is falling. Only 38% of directors say that gender diversity is very important to their boards, down from 46% in 2018--and the lowest level since 2014. Similar to ESG, directors seem to be tired of the issue--63% of directors say investors devote too much attention to board gender diversity, up from 35% last year.
In 2018, California enacted a law requiring all public companies headquartered there to meet minimum threshold requirements of female directors beginning this year, the first law of its kind in the US. While directors recognize the benefits of having a diverse board, most (83%) don’t believe forcing diversity through laws is the best way to actually make their boards diverse. It’s not just male directors saying this, either: 54% of female directors agree.
Culture problems are often at the root of corporate crises. Many companies and boards are taking a hard look at their own culture to see where culture problems might originate. Directors are also looking at who’s to blame. The tone set by executive management is cited the most often, but more directors are pointing the finger at middle management. Boards themselves are also taking more accountability: 29% of directors strongly agree that a lack of board oversight contributes to problems, up from 18% in 2018.
PwC’s Annual Corporate Directors Survey has gauged the views of public company directors from across the United States on a variety of corporate governance matters for more than a decade.
In 2019, 734 directors participated in our survey. The respondents represent a cross-section of companies from over a dozen industries, 74% of which have annual revenues of more than $1 billion. Seventy-nine percent (79%) of the respondents were men and 21% were women. Board tenure varied, but 60% of respondents have served on their board for five or more years.