PwC: More Corporate Boards Taking a Long-Term Strategic Outlookby
Shareholders' push for next-quarter results has clashed for several years with corporate directors' focus on long-term goals, and the result hasn't been pretty. Even so, a newly released survey by Big Four firm PricewaterhouseCoopers (PwC) LLP indicates that the boardroom is taking steps to ensure a farther-range outlook.
According to PwC's 2015 Annual Corporate Directors Survey, 58 percent of the 783 public company directors who were surveyed say their strategic timeframe is at least five years, compared to 48 percent in 2011. A shorter outlook of one to three years gets a nod from 42 percent, down from 52 percent who favored it previously.
The respondents were 86 percent male and 14 percent female, and 74 percent are board members at companies with more than $1 billion in annual revenue in about 24 industries â but the prominent sectors were industrial products, energy, insurance, and banking.
âThe growing dichotomy between long-term and short-term thinking is having a notable impact on today's corporate boardrooms,â Paula Loop, leader of PwC's Center for Board Governance, said in a prepared statement. âBoard members are feeling the pressure to focus on near-term results and are opening up direct dialogue with investors. They are also turning a more critical eye inward in an effort to improve the quality and flow of information from management, gain a better understanding of IT, and prepare for potential shareholder activism.â
The PwC study revealed 30 other takeaways. We've combined several to give you 10 highlights.
1. Directors want to see expertise in their colleagues. The majority (91 percent) of corporate directors said financial expertise outweighs other attributes. That was followed by industry, operational, and risk management expertise.
2. Peer performance needs improvement. Almost 40 percent of directors want to replace a fellow board member, up from 31 percent three years ago. They cite aging, unpreparedness for meetings, and a lack of expertise for the unsatisfactory performances. Interestingly, the longer a director is on the board, the less critical that director is of his or her peers.
3. Shareholder activists are anticipated and receiving more attention. Most directors reported that boards routinely communicate with the biggest investors, and 56 percent monitor stocks to determine changes in company ownership. Most directors (77 percent) say it's âsomewhatâ appropriate to discuss executive salaries with shareholders, while most say it's appropriate to discuss company strategy.
4. Board diversity gets mixed reviews. The majority (63 percent) of women board members â the minority among survey respondents, remember â say gender diversity is very important, compared to 35 percent of the men. About half (46 percent) of the women also say racial disparity is very important, while 27 percent of the men agree. More than 70 percent say there are impediments to increasing diversity, including a lack of diverse director candidates. Yet, most directors believe diversity âsomewhatâ improves board effectiveness and company performance â and more than a third say it does very much. Newer directors value diversity more than longtime directors.
5. IT strategizing outweighs cyber-risk expertise. Most (89 percent) directors value expertise in IT strategy and want more time devoted to it, but 65 percent also want additional time spent on cybersecurity and other risks. Most directors say they are fairly comfortable about the state of cybersecurity at their company, and meetings with CIOs have become more frequent. However, directors at smaller companies are more concerned with the adequacy of cybersecurity metrics they receive than directors at larger companies.
6. CEO succession planning is an issue. About half (48 percent) of directors say their boards spend enough time on CEO succession planning, compared to 62 percent last year. And more than half say their company is somewhat or not at all ready to deal with an unplanned CEO succession emergency.
7. Management communication and board materials need to improve. Most directors want to see their materials better address risks that concern items of discussion, and they want more insights from managers. Slightly more than half (56 percent) of directors want more informal talks with managers.
8. Proxy access among biggest governance issues. Proxy access and disclosure regarding the board's investor engagement policy are discussed the most among directors, followed by board leadership (about half of directors say companies split the role of chairperson and CEO) and mandatory retirement.
9. Fraud control increases. Most (68 percent) directors reported that their boards discuss âtone at the topâ regarding fraud reduction, compared to 46 percent in 2012, and many directors discuss risk with lower-ranking managers.
10. Thumbs-up to internal audit functions. The majority (90 percent) of audit committee members say internal audit's skills, leadership, corporate stature, and materials given to the board are good or excellent.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.