This newsletter’s Table of Contents is as follows
- Pay Is Not the Only Factor in Retention: Build an employee value proposition.
- You can’t do business on a dead planet: How the SEC’s climate disclosure plan raises the bar for boards.
- TOP 10 Questions Boards Should Ask at Every Meeting
- Board composition and succession planning trends
1. Pay Is Not the Only Factor in Retention: Build an employee value proposition.
The Great Resignation has put retention on the agenda of many boards.
In the past, most compensation committees had narrow mandates focused on pay for senior executives. But, especially at larger companies, many of these committees now cover talent, culture and rewards for the broader organization. Even before the pandemic, companies were struggling to hold onto talented people and HR leaders were urging attention to overall human capital management. Compensation committees with broader responsibilities benefit when directors widen their perspective and consider retention elements of the company’s overall employee value proposition (EVP), of which pay is just one part.
The committee’s role is not to set goals or recommend specific policies. The board should instead drive management to develop a holistic plan to encourage retention. Such a plan goes beyond using retention incentives to discourage departures or scrambling to react to rival offers. It enables the compensation committee to engage with the management team to focus on organizational strengths and the career opportunities the company has to offer so they can “re-recruit” their people.
Source: Directors and Boards
2.You can’t do business on a dead planet: How the SEC’s climate disclosure plan raises the bar for boards
The SEC has proposed sweeping new disclosure requirements that would require public companies (both US issuers and foreign private issuers) to provide information about climate-related risks.
The proposed disclosure requirements relate to climate-related risks that are reasonably likely to have a material impact on a company’s business, results of operations or financial condition. Among other things, they cover greenhouse gas emissions, climate-related financial metrics, strategy and related matters – as well as attestation requirements and disclosures related to board governance in an attempt to address the perceived gap in climate change disclosures.
The proposal raises the bar with respect to board governance and has substantial implications for boards in their oversight of climate-related risks and, if applicable, climate-related opportunities. It identifies several areas requiring additional disclosure related to board governance, including:
The proposed disclosure requirements relate to climate-related risks that are reasonably likely to have a material impact on a company’s business, results of operations or financial condition. Among other things, they cover greenhouse gas emissions, climate-related financial metrics, strategy and related matters – as well as attestation requirements and disclosures related to board governance in an attempt to address the perceived gap in climate change disclosures.
The proposal raises the bar with respect to board governance and has substantial implications for boards in their oversight of climate-related risks and, if applicable, climate-related opportunities. It identifies several areas requiring additional disclosure related to board governance, including:
- The identity of any board members or board committee responsible for the oversight of climate-related risks
- Whether any member of the board of directors has expertise in climate-related risks, with disclosure in such detail as necessary to fully describe the nature of the expertise
- The processes by which the board of directors or board committee discusses climate-related risks, including how the board is informed about climate-related risks and the frequency of such discussion
- Whether and how the board of directors or board committee considers climate-related risks as part of its business strategy, risk management and financial oversight
- Whether and how the board sets climate-related targets or goals and how it oversees progress against those targets or goals, including the establishment of any interim targets or goals.
Regardless of whether the whole board or a committee is charged with the oversight of climate-related risks, the audit committee would likely oversee the following aspects of the proposed rules:
- Disclosures related to the company’s climate-related matters in notes to financial statements
- Assurance requirements, which will require the engagement of an audit firm or other third party to provide an attestation report
- Changes to internal control over financial reporting to address proposed disclosure requirements outlined in the proposed rules, as well as the assurance requirement.
Source: Corporate Secretary
3. TOP 10 Questions Boards Should Ask at Every Meeting
Here are the most pressing TOP 10 queries for boards to be posing to management, according to Ram Charan and Dennis Carey, vice chairman of Korn Ferry.
- What is keeping the CEO awake at night, and what can the board do to help?
- What are the top three to five priorities of management, and what is blocking them?
- Are the blockers surmountable? If not, why?
- Do we have the right team and a truly value-added board? If not, why are they still here?
- Do we know our competitors’ teams? Who are they? Are they better than ours?
- What threats can destroy us? Digital delay? Inflation? Wrong strategy? Disruptors? ESG? Climate change? Political influences? Etc.
- Are we aware of our investor mix and what it portends?
- Are we smarter than the analysts/media? If not, why not? How can we correct that?
- Do we have cyber protection designed by real experts? If not, what can be done?
- Are we complacent? If so, how do we correct before obsolescence sets in?
Source: Ram Charan and Dennis Carey
4. Board composition and succession planning trends
Having the right individuals in the boardroom is critical. Corporate directors need to have the skills and experience that align with the company’s long-term strategy. Diverse and fresh perspectives are also important. While boards have been focusing on these topics, other areas like director tenure and board succession planning are often addressed only when the board needs to replace a retiring director. This is not overly surprising considering they can be sensitive topics. So how should boards be thinking strategically about their board composition—now and in the future—to ensure optimal performance?
Actions for consideration relating to board refreshment:
Actions for consideration relating to board refreshment:
- Make sure board refreshment and succession planning priorities are on the agenda
- Assess corporate director skills and attributes, and incorporate results from board assessments
- Set directors’ expectations around tenure
- Take a multi-year view toward departures and address upcoming leadership changes
- Agree on a board succession plan that prioritizes needs and builds a talent pipeline
Source: PWC
