Overseeing a company in a changing business landscape comes with many challenges. Company boardrooms face an array of internal and external pressures including disruptive technologies, geopolitical turmoil, cyber threats, increasing regulations and engaged investors. The PwC Annual Corporate Directors Survey provides insight on the “The Good,” “The Bad” and “The Ugly” boards face.
On October 25, Paul DeNicola, Managing Director of PwC’s Governance Insights Center joined TK Kerstetter to discuss highlights from PwC’s 2016 Annual Corporate Directors Survey. Named “The Swinging Pendulum: Board Governance in the Age of Shareholder Empowerment,” this year’s survey discovered what board governance looks like in a new age where shareholders have more say than ever on how companies are governed.
This year, over 880 sitting board members responded to the survey. About 70% of the directors represented companies with over one billion dollars in annual revenue, and the gender distribution was in line with the average distribution of public company directors (83% male and 17% female).
Positive Insights – Shareholder Empowerment
In 2016, the overall engagement between board members and investors has increased. More than half of directors said someone on their board, other than the CEO, has interacted with the company’s investors. And directors are recognizing the value of activism. Nearly 80% of directors believe that activism has driven companies to evaluate strategy, execution and capital allocation. Boards adopting an activist mindset will anticipate weaknesses and preemptively address them.
Another positive insight from the survey indicates that boards are positively reacting to pressures from major shareholders and activists when it comes to board composition. In result, boards are looking outside of their existing networks to add new, diverse directors. In 2016, 61% of directors surveyed said their boards added a director with a specific skill set, 46% said they added a diverse board member, and 34% said they added a younger board member.
But do directors see the value in all shareholder engagements? Only one in five directors said the right investor representatives were present during those conversations, and the same amount of directors responded that investors were prepared for the meetings. Further, only 18% of directors reported that these conversations impacted proxy voting, and only 14% claimed these meetings impacted investment decisions.
Evaluating Director Effectiveness
Over the past few years, directors have been very consistent when asked if fellow directors should be replaced in their boards; this year, about one-third of directors voted yes. In 2016, unpreparedness for meetings was the main reason to replace board members jumping up from 11% in 2012 to 25% in 2016. However, not all of these responders reported taking action and making changes after a self-evaluation. Looking forward, boards should use these statistics as motivation to reevaluate their board evaluation processes.
Board Composition and Diversity
This year’s survey confirmed a tremendous issue in board diversity. Gender diversity is proven to improve financial performance, but male directors are slow to support the idea. In 2016, only 24% of male directors polled believe that board diversity leads to enhanced company performance, and only 38% of the directors believe that diversity leads to enhanced board effectiveness. In future years, this statistic is expected to improve due to reason and investor pressure at risk of falling behind more diverse boards.
Watch the October 25 episode of “Inside America’s Boardroom” for more insights on PwC’s 2016 Annual Corporate Directors Survey.
The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The results of the survey were not independently verified by Nasdaq. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal advice.