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Lead on board effectiveness

Business is in a third wave of corporate governance evolution brought on by the Sarbanes-Oxley and Dodd-Frank acts. New and rapidly evolving strategic challenges and business risks are helping to drive the modernization of long-standing governance practices. That, in turn, is impacting how boards conduct their oversight responsibilities.

In that environment, effective corporate governance can affect the long-term viability of the organization. And effective corporate governance starts with an independent, well-composed board that reflects a diversity of personal characteristics, experience, skills and opinions. But as our 2023 Annual Corporate Directors Survey finds, getting board composition right is often a balancing act between preserving institutional knowledge, adding much needed experience and removing underperforming members.

Looking ahead

Use the board assessment process to help drive change and effectiveness. That includes having candid discussions about board refreshment, director performance, tenure and a mandatory retirement age. And try not to recoil from the idea of temporarily expanding your board’s size when the right candidate comes along; retirements or resignations may offer opportunities to downsize at a later date.

Prepare for the unexpected

Be aware of potential blindspots in your oversight responsibilities. Our 2023 Annual Corporate Directors Survey finds that almost all respondents believed their boards were capable of guiding their companies through a crisis, but only about half had created a formal crisis management policy. That sense of overconfidence may lead you to downplay a potential risk or, worse, ignore it altogether. Operational disruptions due to extreme weather, supply chain snarls, cyber attacks or political unrest can occur at any time.

Looking ahead

Prepare for the unexpected by regularly engaging with C-suite executives such as the chief risk officer, the chief sustainability officer or the chief information officer to discuss both established risks like cybersecurity and climate change and those that may be hard to predict. Even a holistic risk management process may not be able to stop a bad actor intent on harming your company, but boards that establish a strategy for understanding crises and responding to them can quickly regain market credibility and trust.

Engage with stakeholders

Not everybody across the enterprise understands the board’s role and this can lead to misperceptions about its effectiveness. Our 2023 Board Effectiveness survey found that a majority of executives believe the board had a firm grasp of strategy and risk, but only 29% rated their performance as excellent or good, and only 21% of executives said they think board members spend enough time fulfilling their responsibilities.

Looking ahead

More face-to-face interactions with the C-suite can go a long way toward clearing up those inconsistencies. Consider extending relationship building to key external stakeholders as well. Institutional investors, shareholders, activist investors and others are likely seeking greater disclosure of certain issues such as the financial impacts of climate change and may use the proxy voting process as a way to drive change. A board that regularly engages with these parties and can clearly articulate their story may alleviate potential boardroom conflicts.

Only 29%

of executives rate their board’s overall performance as excellent or good.

Source: 2023 Board Effectiveness: A survey of the C-suite

Embrace new technology

Emerging technologies such as AI, including generative AI, have the potential to help your company reinvent the way it operates and executes on strategic opportunities. The board has a role to play in overseeing emerging technologies to help safeguard the company while delivering value.

Looking ahead

To provide effective oversight, you should understand the potential of emerging technologies — and their limitations. A good starting point is to increase your knowledge by tapping both internal specialists and external resources to stay apprised of the technologies’ growing capabilities, keep up with new use cases and how business models are changing, and risks and responsible use. Boards should also discuss with management accountability issues and the overall benefits and costs to the company.

68%

of CEOs say generative AI will significantly change the way their companies create, deliver and capture value over the next three years.

Source: US CEO views from PwC’s 27th Annual Global CEO Survey,
base of 4,702, US base of 231

Seize opportunity in ESG reporting

Just over half (54%) of corporate directors say that environmental, social and governance (ESG) issues have a direct link to their company’s strategy – a continued decline over the last three years that could indicate boards could be missing out on a massive strategic opportunity.

Looking ahead

A wave of global regulations means companies are likely on the cusp of publishing more ESG data than ever before. While at first blush this may simply seem like a compliance exercise, boards should engage the chief executive officer, the chief sustainability officer and the chief financial officer on whether this data reveals new insights. Companies that collect, measure and manage this data can ground decisions about product sustainability, decarbonization and supply chain resilience in real-time data that can be analyzed throughout the year.

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