of executives say their boards have a strong understanding of corporate strategy
of executives rate their board’s overall performance as excellent or good
of executives say one or more directors on their board should be replaced
of executives trust their boards to effectively engage with shareholders
Driven largely by market forces, business is in a third great wave of corporate governance evolution. This follows significant changes brought about over the last twenty years by the Sarbanes-Oxley and Dodd-Frank Acts. This current wave is driving the modernization of long-standing governance practices, impacting how boards fulfill their decision making and oversight responsibilities. But the changes are also surfacing conflicts and discontent.
To explore how executives perceive board performance, PwC and The Conference Board conducted our third annual survey of more than 600 public company C-suite executives in the fall of 2022. This survey was augmented by a series of executive interviews to gain qualitative insights.
With companies facing new and rapidly evolving strategic challenges and business risks, today’s board oversight responsibilities extend well beyond traditional areas. This expansion may be impacting management’s perception of board effectiveness.
Boards continue to perform well in the traditional areas of oversight like corporate strategy. But companies are revisiting and revising their strategies to address the digital and sustainability transformations for their industries and firms. Board efficacy in these other areas of oversight has room to improve.
Board refreshment is more than just bringing fresh perspectives into the boardroom. If done effectively, it means evaluating and aligning the mix of director experience, skills and backgrounds needed to add value to the board’s oversight of the company in the coming years. Consistent with last year’s survey, 89% of executives suggest that at least one of their directors should be replaced. Strikingly, 41% of executives suggest that more than two should be replaced.
The dramatic increase in executives who say the board is not overstepping its role may reflect management’s appreciation for the board’s increased workload and scope of responsibilities due to heightened investor and constituency expectations, increased regulatory requirements, and an increase in the number and complexity of areas of board oversight. At the same time, the board’s increased remit may result in the board not having the time or knowledge to challenge management as effectively as in the past.
Not long ago, boards had relatively little engagement with shareholders. As the frequency of director engagements with investors has grown in recent years, so have demands. The bottom line has remained constant: Effective engagement is built on understanding and trust. But management’s view of director engagement with shareholders reveals disconnects:
Effective corporate governance requires that management and boards develop new ways of working as the business landscape continues to shift. In the final analysis, executives believe their boards are doing “okay,” but there is room to do better. Improving the board’s mix of skills, knowledge, experience, diversity and backgrounds to align more closely with the company’s strategic direction can enhance board effectiveness. Getting back to some of the basics and focusing on foundational governance can boost overall effectiveness even as boards seek ways to better address today’s and tomorrow’s challenges. Management must support the board, fully joining the directors in that evolutionary journey.
PwC and The Conference Board’s study, Board Effectiveness: A survey of the C-suite, gauges the perception that C-suite executives at public companies across the US have related to the performance of their boards of directors. In 2022, 601 executives participated in our survey. The respondents represent a cross-section of senior executives from over a dozen industries, the majority of whom help to lead companies with revenues of more than $1 billion.