Boards aren't shouldering increased corporate responsibility, executives say

Jun 15, 2023 View in browser   By Jordan Wolman THE BIG PICTURE Companies are asking more of their boards, but the directors aren't really delivering, a new survey finds. Just 29 percent of U.S. corporate executives say their boards are doing a good or excellent job, according to a survey released last month by PwC and The Conference Board of 600 C-suite executives at U.S. public companies. More than half — 56 percent — rate their boards’ overall effectiveness as fair. Executives at large companies (annual revenue of more than $10 billion) are increasingly critical: The percentage who rated their board as excellent dropped to 13 percent in 2022, from 19 percent in 2021, and those rating their board as good dropped to 20 percent, down from 29 percent in 2021. Boards of directors are typically elected by shareholders to set strategy and oversee management. Top company executives usually serve on boards, in many cases as chair. Overwhelming majorities reported their boards perform well in traditional areas of oversight: corporate strategy, key risks and opportunities and competitive landscape. But it’s clear they have work to do on diversity, engagement, and expertise in certain areas. “Management has rising expectations of their board that are just not being met,” said Paul Washington, executive director of the ESG Center at The Conference Board and lead author of the report. “Management’s goalposts for the board have moved.” Only 20 percent of respondents said their boards were diverse enough. And nearly 9 in 10 said at least one director should be replaced, with 41 percent wanting more than two directors ousted. On engagement, one-third of respondents said their boards ask probing questions, while just 21 percent said their boards spend enough time fulfilling their responsibilities. A silver lining on that latter point: 82 percent of executives said their boards do not overstep their role. But 6 in 10 said they don’t trust boards to effectively assess their own performance. About two-thirds said they trust their boards to engage effectively with stakeholders, but just under half said their boards don’t understand shareholder priorities. One-fourth of respondents said their boards don’t understand shareholder priorities at all. Executives also had a dim view of their boards' competencies on specific issues. Half of executives said they think their boards understand their data privacy and cyber vulnerabilities at least somewhat well, while 90 percent of board directors said as much. Seventy-one percent of executives said they don’t think ESG issues receive enough attention, and 65 percent said as much for climate — compared with just 15 and 16 percent, respectively, of board directors who thought as much. That mismatch came up in a separate 2022 PwC survey that found 11 percent of directors said having environmental or sustainability expertise is very important to the boards’ effectiveness. Company size matters here, too. In companies with a revenue of at least $5 billion, 70 percent of executives and 94 percent of directors said they think their boards understand their ESG strategy at least somewhat well. But in companies with a revenue of less than $1 billion, those numbers dropped to 59 percent for executives and 73 percent of directors. “In the final analysis, executives believe their boards are doing ‘okay,’ but there is room to do better,” the report concluded, adding that “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.”   SUBSCRIBE TO POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don’t miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY.     YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. We deliver data-driven storytelling, compelling interviews with industry and political leaders, and news Tuesday through Friday to keep you in the loop on sustainability. Team Sustainability is editor Greg Mott, deputy editor Debra Kahn and reporters Jordan Wolman and Allison Prang. 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