The evolving boardroom: Signs of change

PwC’s 2018 Annual Corporate Directors Survey

Seeing signs of change in the boardroom

Expectations for corporate directors are rising. Companies are more global and connected—and board oversight is increasingly more complex. Cybersecurity is a top area of focus, and social issues are starting to become part of strategy discussions. Meanwhile, institutional investors continue to push for board diversity. And directors recognize that every board member needs to bring something valuable to the table.

Directors are stepping up and embracing change. PwC’s 2018 Annual Corporate Directors Survey shows that directors are listening more, learning more and engaging more. Read on to find out how.

Top findings from the survey

1. Culture problems? Don’t forget middle management

From the #MeToo movement to defrauding customers, corporate culture problems have made plenty of headlines recently. A company’s poor culture can snowball from bad to scandalous—causing some very big corporate headaches. As a result, many boards have been taking a hard look at the issue and the risks a bad culture can pose. And they’re trying to identify the root cause. Not surprisingly, directors say the biggest contributor to problems is the tone set by executive management. But it’s not just the tone at the top anymore. Directors say it’s the tone set by middle management, too. In fact, 79% say so. Directors also point to shareholder pressure. In particular, directors cite excessive focus on short-term results, which nearly 60% of directors say institutional investors spend too much time on.

But they say their companies are doing something about culture issues. Some say their company has enhanced employee training programs, while others are improving their whistleblower programs. Still, only 17% say they have revised compensation plans, even though 67% say that those plans can drive bad behavior when poorly designed.

2. Evaluating corporate culture: going with your gut may not be enough

A company’s culture isn’t always easy to define, but it drives what people do and don’t do. Boards need to help promote a strong culture—one that promotes the right behaviors throughout the company. But how do directors go about really understanding and gauging culture? More importantly, are they getting it right? Nearly two-thirds of directors go with their gut feeling from their interactions with management, though only 32% believe relying on gut instincts is the way to go.

So what do directors think is actually useful? Hearing from employees. Topping the list of the most useful metrics for evaluating culture are employee engagement survey results, exit interview debriefs and feedback results for executives.

3. Social issues and strategy make a stronger connection

Social issues are slowly making their way into the boardroom. In fact, directors are becoming more open to considering social issues when discussing company strategy. Issues such as healthcare availability and cost, resource scarcity and human rights are much higher on directors’ radars this year.

But there are still many directors who are neutral or don’t think these issues should factor into strategy discussions. At the same time, directors say focus on the topic is overdone. Nearly one-third of directors (29%) say shareholders pay too much attention to it.

4. The cybersecurity disconnect: awareness is hot, crisis management is not

Cybersecurity is a constantly moving target. Still, directors say they’re on the ball. They’re more comfortable with what their companies are doing around the topic, and they’re taking steps to prepare for a cyber incident. But a cyberattack can happen to any company at any time. Are boards really sure their company won’t be caught flat-footed if there’s a breach?

A cyber incident isn’t the only thing that can bring a company to its knees and force boards into crisis mode. Boards say they’re preparing for anything to happen. In fact, 84% say they’ve discussed management’s plans to respond to a crisis, and 64% say they know who their external advisers are. But will that be enough if a crisis actually hits? Less than half say their company has a written escalation policy in place should a crisis occur.

5. Cybersecurity oversight struggles to find a home in the boardroom

With more than 53,000 confirmed cyber incidents this year,1 it’s a good thing that directors say they’re prepared. As boards brace for an incident, they’re also trying to figure out how best to oversee cybersecurity. Oversight often falls to the audit committee, but there’s a shift happening. In many cases, it’s moving from the audit committee to the full board. And some boards are shifting it from one committee to another.

1 Verizon, 2018 Data Breach Investigations Report, 2018.

6. Directors see value in diversity . . . but question the motivation

Board diversity has been a hot topic for years, and directors seem to be getting the message. Most recognize the value that diversity adds. Nearly all agree that it brings unique perspectives to the boardroom, and the majority say it enhances board performance. Most also say diversity improves relationships with investors—those who have been strong supporters of it.

While 91% of directors say their boards are taking steps to increase diversity, many directors seem cynical: more than half say board diversity efforts are driven by political correctness. And nearly half think shareholders are too preoccupied with the topic. Some also hint that it’s just a “check-the-box” exercise.

7. Almost half of directors think someone on their board should be replaced

Directors, take a look around the board table. Your fellow board members might not think you’re pulling your weight. In fact, for the second year in a row, 45% of directors think at least one person on their board isn’t measuring up. Today’s rapidly changing business environment means everyone sitting at the board table needs to step up and contribute at the highest level.

About PwC’s Annual Corporate Directors Survey

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 the summer of 2018, 714 directors participated in our survey. The respondents represent a cross-section of companies from over a dozen industries, 76% of which have annual revenues of more than $1 billion. 81% of the respondents were men, and 19% were women. Board tenure varied, but 64% of respondents had served on their board for five or more years.

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Paula Loop

Governance Insights Center Leader, PwC US

Paul DeNicola

Principal, Governance Insights Center, PwC US

Leah Malone

Director, Governance Insights Center, PwC US

Sharad Jain

Partner, Governance Insights Center, PwC US

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