This newsletter’s Table of Contents is as follows:
- Top of mind for directors
- Assessing the board’s role before the next crisis
- Digital readiness
- Talent development through the boardroom
- As risks rise, boards respond
- Talent at the table: Index of women in power and utilities
- Pay governance guidelines for compensation committees to consider
- Global & Regional Trends in Corporate Governance in 2017
1. To of Mind for Directors
The annual survey of corporate directors by Corporate Board Member magazine reported that the top three issues of concern for directors in 2017 are strategy, business disruption and cybersecurity. Many of the directors surveyed said they would like to add a board member with technology experience to provide expertise in this key area. Other director attributes identified as important included industry knowledge, financial expertise, gender diversity and CEO experience.
Source: Corporate Board Member
2. Assessing the board's role before the next crisis
According to a survey by the Institute for Crisis Management based on reports of more than 220,000 crisis events that occurred in 2014, the vast majority of crises were derived from issues that were within the control or oversight of organizations, led by the categories of mismanagement, white collar crimes, and whistleblower events; together they accounted for more than half of all events examined. These findings suggest why boards should hold management accountable for the types of behaviors that can lead to damaging events, including lack of foresight. Above all, boards should be confident that management has a crisis playbook that details how to respond to a range of events, with clear divisions between what management would do and where the board would be brought in, depending on the nature of the crisis.
Source: Deborah DeHaas, CIO & National Managing Partner | Deloitte LLP
3. digital Readiness
Only 50% of CFOs see the shift to digital as a high priority for their organization. Is it a priority for you?
Digital is the defining megatrend of our time. It creates both opportunities and threats, and has the proven
potential to directly impact companies from top to bottom. Yet surprisingly, our most recent survey, Partnering for Performance Part 5: the CFO and the chief executive officer revealed that only 50% of the 652 CFO participants consider the shift to digital to be of high or very high priority for their organizations in the next three years. The same study showed that only 49% believe that they have a major contribution to make as organizations make the shift to digital. If Boards want to fulfill their agenda of growing, protecting and transforming their organizations, they need to address their organization’s digital readiness and the gaps that exist. And they need to do it with a sense of urgency.
Source: EY – CFO digital readiness, a global perspective
4. Talent Development Through the boardroom
Many large U.S. companies are actively seeking external boardroom positions for their senior executives as a means of developing their knowledge and expertise. According to The Wall Street Journal, 80 percent of large-company leaders use their networks to find board positions for their senior teams, arguing that board experience provides unique insight as well as helps executives learn how to interact with boards.
Source: The Wall Street Journal
5. As risks rise, boards respond
A global view of risk committees
Boards of directors have been working hard to fulfill their risk oversight responsibilities in a challenging environment. Deloitte set out to study a specific and very effective risk governance mechanism: board-level risk committees. Based on analysis of 400 large public companies in eight countries. Here’s what we found:
- Board-level risk committees are well-established and widespread — present in 38% of the 400 companies analyzed. About a quarter (22%) have standalone board-level risk committees, while 16% oversee risk through hybrid board-level committees.
- As might be expected, board-level risk committees are most prevalent in FSI companies (88%), but are also present in other industries (26%), often to a significant extent, depending on the country.
- Local regulations affect risk oversight structures. Australia, Brazil, Mexico, Singapore, the UK, and the US have regulations that require risk committees at the board level for FSI companies (sometimes dependent on the type and size of the company).
- Overall, 62% of all companies analyzed do not have a board-level risk committee. This largely reflects the lack of regulatory requirements for board-level risk committees in non-FSI companies in most countries.
The bottom line, is that every board should periodically assess the risk oversight and governance needs of the organization and take whatever steps it deems necessary to address those needs.
Source: Deloitte “A Global View of Risk Committees”
6. Talent at the table: Index of women in power and utilities
Our third Women in power and utilities (P&U) Index analyzes gender diversity in the boardrooms of the world’s largest 200 utilities by revenue. This year the Index is static for female executive board executives (5%, the same as 2015) but shows an increase in overall board members (16%, up from 14% in 2015). Averaged over three years, however, progress has been a glacial 1% increase. It’s time to put gender on the agenda, so utilities can realize the full business benefits of diversity.
Why is progress so slow? Recent EY research into gender parity reveals that just over half of respondents don’t even measure or report progress on gender diversity in leadership. It’s said that when you shine a spotlight on a behavior, it changes. The reverse is also true. It’s likely that this lack of measurement and reporting on gender diversity is one of the root causes for slow progress.
Source: EY – “Talent at the Table”
7. Pay governance guidelines for compensation committees to consider
Balancing pay with performance
Balancing executive pay with executive performance is an emotionally charged issue often faced by compensation committees. The tension surrounding these decisions has intensified in the face of ongoing market volatility, new regulations, and rising shareholder activism. It is important for compensation committees to focus on adapting a core set of principles to guide compensation decisions. The following guidelines can help to determine compensation committee priorities and what gaps need to be addressed.
- Ensure the compensation program supports the business strategy.
- Understand how shareholders perceive the compensation process.
- Understand the views of proxy advisory firms.
- Determine the potential impact of regulatory requirements.
- Consider a CEO pay ratio strategy.
Source: Deloitte – Directory Advisory
8. Global & Regional Trends in Corporate Governance in 2017
Based on interviews in each market and our collective insights, we believe in 2017 public companies globally will likely face the following trends:
- More focus on what makes a highly-effective board, with attention particularly being paid to independence, composition, diversity, and board leaders’ roles
- More scrutiny of individual directors by investors, or their advisors, and increasing demand in many markets for internal and/or external board and director assessments to drive board performance
- More regulations, more revisions to corporate governance codes, and more rules on increased transparency
- More shareholder engagement, particularly around ESG concerns, and more activist investor interventions when shareholder engagement is absent or trust breaks down
Source: Russel Reynolds Associates
