A lot has happened in the world — and in business — since 2022, from digital transformation to a global pandemic. But many things have remained constant: the continued presence of Sarbanes-Oxley rules, the evergreen pressure for shareholder returns and sustainable growth, and board members still focused on “taking care of business” in their oversight role — to paraphrase the title of the Diligent Institute's 2023 “What Directors Think” survey.
For this 20th anniversary edition, Corporate Board Member partnered with the Diligent Institute to ask 300 board members from a wide range of backgrounds what was on their minds over the past year and what they see on the horizon for the years ahead. Read on for highlights.
Labor Pains Across the Corporate Hierarchy
Among the issues on directors’ minds right now, labor availability and costs ranked number two, just behind federal policy and interest rates.
“I have three children who graduated college between 2008 and 2012 and are all in jobs that did not exist when they left for school. Companies and committees are going to have to keep up,” said Applied UV Board Chair Joel Kanter.
The seismic shifts of COVID-19, remote/hybrid work, and the Great Resignation have also impacted the traditional idea of the workplace. “We need to have a different frame of mind, how we relate to our workforce; we need to think about labor differently, we need to compensate differently, we need to be closer to our workforce,” said CSX board member Steve Halverson.
The report outlines how such sentiments have translated into action so far:
- 87% of respondents said their companies had adjusted their policies on remote work.
- 73% said they’d created more flexible hours for their workforce.
- 64% said talent has gained too much leverage in the current labor market.
- But just 22% said their companies had changed their leave or sick time policies in the face of COVID-19.
There’s tumult at the top of the organization too. Almost a quarter (24%) of directors said shareholders had asked to discuss CEO compensation with the board over the past 12 months. This is perhaps not surprising given the rise of ESG and pay ratio disclosures. Headline after headline highlights the growing pay gap between the top leadership and front-line employees, and boards have been pressured to justify the large bonuses they’re handing out — particularly in times of underperformance and unachieved guidance.
With 26% of the votes, CEO succession now ranks fourth among the issues directors find most challenging to oversee today.
As ESG Interest Wanes, Compliance Concerns Escalate
In the 2022 survey, ESG regulations only ranked third as to what board members are monitoring most. In fact, half of respondents said that ESG is getting too much attention in the boardroom.
However, while boards may be reporting decreased interest in ESG, a concurrent trend is taking shape. They’re taking the “E” of the acronym quite seriously in other aspects of their oversight, such as the SEC’s proposed climate disclosure requirements (a final climate disclosure rule is expected this April.) In fact, the majority of directors reported having had discussions about what the requirements mean for their companies. Over half of respondents said they’re bringing in external experts and getting briefings from the legal team, and 40% are engaging in director education programs.
As for boardroom diversity, “It’s much better than it was 20 years ago. And 20 years from now, it’s going to be much better still,” said Barbara B. Grogan, former chair and president of Western Industrial Contractors, and former director at Apogee Enterprises, Deluxe Corp. and Pentair. “Diversification should come because companies think they can benefit from having people with different experiences. That should be the main reason. Not window-dressing.”
The Evolving Role of Audit
Two-thirds (66%) of survey respondents reported that the areas of risk their audit committee oversees have dramatically expanded since SOX became law in 2022.
Over one third (35%) said that the audit committee's role now rivals that of the full board in terms of complexity and scope.
Great Expectations for Sustainable Growth
The three top challenges for board oversight — cyber/data security, digital transformation/innovation /new technologies, and capital allocation — tell an overarching story: How do you grow and transform while optimizing resources and mitigating risk?
Long-term strategic planning (35%) and short-term growth and financial performance (33%) nearly tied as the top issues on shareholders’ minds. To successfully satisfy these expectations, companies need to know what’s on customers’ minds as well: Nearly half (49%) of directors named customer satisfaction the best indicator of a company’s performance in today’s environment — ahead of long-term total shareholder return (46%) and achieving or exceeding earnings guidance (46%).
Directors are feeling the weight of these expectations in terms of their own workloads. This year’s survey respondents said one of their biggest challenges is time. “The main sticking point,” according to the report, “is the time they now must spend in meetings due to the proliferation of issues on the agenda.” Three-quarters said they expect their roles and responsibilities to continue expanding in scope over the next 3 to 5 years.
With board members and governance professionals likely to become increasingly time-poor, it's imperative that they find a solution that allows them not only to streamline board meetings and board processes but one that also helps them to be prepared for any upcoming challenges they may face. Find out how to keep up with rising demands in our Governance Checklist.