Key Findings from PwC’s 2020 Annual Corporate Directors Survey, and the new Director Confidence Index from Corporate Board Member and Diligent Institute

The Corporate Director Podcast Episode 40: Hot Trends in Corporate Governance with Leah Malone and Melanie Nolen

Listen to Episode 40 on Apple Podcasts

Guests: Leah Malone, Director, PwC Governance Insights Center and Melanie Nolen, Director of Research for Corporate Board Member, part of Chief Executive Group

Hosts: Dottie Schindlinger, Executive Director of the Diligent Institute, and Meghan Day, Senior Director of Board Member Experience for Diligent Corporation

In this episode:

  1. COVID-19 calls for more collaboration. While nearly all respondents gave their companies high marks for their immediate COVID-19 response, only 37% of directors said they understood their company’s crisis management plan.
  2. ESG is ascending on the agenda—but not into action. Only 38% of survey respondents say they feel that ESG issues have a financial impact on their company.
  3. D&I is lagging for board composition and executive compensation. But a more structured approach to board refreshment and succession planning could improve this picture.

Summary

For over 15 years, PwC has been reaching out to hundreds of directors to get a sense of board practices, perspectives, and trends. The result is the Annual Corporate Directors Survey, one of the largest surveys of public company directors in the United States.

The 2020 report is out. Leah Malone, a director with PwC’s Governance Insights Center, shares highlights from this tumultuous year with podcast co-host Meghan Day—including some surprises and disconnects.

“Leah and the PwC survey never disappoint,” Day and co-host Dottie Schindlinger observe, and this year is no exception.

COVID-19 calls for more collaboration

In the area of COVID-19 response, nearly all directors reported that their companies did a “good” or “excellent” job during the initial days of the pandemic. Yet just over one third (37%) said they fully understood their company’s crisis management plan.

What’s going on here? Day wonders.

Calling it “a bit of a complicated picture,” Malone explains that directors likely saw good results in terms of how management handled issues like business interruptions but didn’t fully understand the details behind these outcomes or how their company’s crisis management plan functions.

As the crisis continues, she anticipates more collaboration between boards and management to evaluate what worked, what didn’t, and how the plan was implemented.

What was supposed to happen, what did happen, and how can they make changes to the plan moving forward? Boards will—and should—be digging into those details more. “It’s not enough to just leave it to management,” she says.

“Going through the COVID-19 pandemic has become a learning experience for boards and management.”

Leah Malone, Director, PwC Governance Insights Center

ESG is ascending on the agenda—but not into action

The 2020 survey reported some progress on ESG, like a 10% jump from last year of directors reporting ESG as a regular item on their board agenda.

Yet even with this bump, just half of boards overall gave ESG a regular board presence in 2020. And only 38% of survey respondents said they felt like ESG issues have a financial impact on their company—despite intensified pressure to move the needle in this area.

What’s missing? Malone cites the continuing need for boards to connect ESG to long-term strategic planning and shareholder value.

“Directors are understanding the clarion call from institutional investors, taking that to heart, and turning to their management teams to say, ‘look this is something that we really need to focus on.’ But at the same time there is still this disconnect,” she says.

“Directors are talking about ESG more in the board room—‘we want to see more disclosures’ or ‘we get it, we have to do something in this area,’—but they aren’t making the connections.”

Leah Malone, Director, PwC Governance Insights Center

DE&I is lagging for board composition and executive compensation

While the vast majority of survey respondents said that companies should be doing more to promote gender and racial diversity in the workplace, only 39% said they supported diversity and inclusion goals for board composition and as a factor in executive compensation plans.

“If you believe that what gets measured gets done, and if you really care about promoting racial and ethnic and gender diversity in companies, you need to take another look at your compensation plans and goals.”

Leah Malone, Director, PwC Governance Insights Center

For board composition, Malone says that current refreshment practices may be impeding progress. “Refreshment changes at a glacial pace, despite the fact that many directors tell us that they think at least one of their fellow directors on the board should be replaced and some directors telling us that it’s two or more.”

She cites problems with succession planning: Fewer than half of directors said their board actually distributes a succession plan, about 10% said succession planning happens in a vacuum, and a third called it “really ad hoc. The day that someone raises their hand and says, ‘I’m planning on retiring’ is the day they start thinking about who will be the next person to replace them.”

“When you take that view of refreshment and succession planning, it’s just a lot harder to know where you’re going and how you’re going to get there,” she says.

Listen to Episode 40 on Apple Podcasts

Also in this episode . . .

Co-host Dottie Schindlinger talks to Melanie Nolan from Chief Executive about the Director Confidence Index, a new initiative by the Diligent Institute that takes a cue from Chief Executive’s longstanding CEO Confidence Index.

So what do corporate directors see for today and the future?

The majority of respondents predicted growth for 2021, but it all depends on having a COVID-19 vaccine by spring. And looking ahead to the Nov. 3 U.S. election, directors are divided on which candidate will be best for business—and roughly 40% say their board have discussed a scenario of increased civic unrest.

Resources in this episode