Only 20% of C-suite executives think their own boards are diverse enough.
Few C-suite executives rate the performance of their boards as good or better.
In a survey of more than 600 C-suite executives by PwC and The Conference Board, most executives rate their board of directors’ overall effectiveness as middle of the road: More than half (56%) say their boards are doing a fair job, while only 29% rate it as good or excellent. Fifteen percent rate it as poor.
In other survey results, 89% of executives want one or more of their directors replaced, 50% say their boards do not understand the impact of digital technologies or the company’s climate strategy. Only half (50%) of the executives say their boards have a strong understanding of cybersecurity/data privacy vulnerabilities, and the impact of digital transformation/emerging technology.
On the positive side, boards received high marks for their firm grasp of corporate strategy (85% of respondents), key business risks and opportunities (72%), and the competitive landscape (62%). And 68% are confident that their boards effectively engage with shareholders.
“U.S. corporate boards typically assess their effectiveness through their annual self-evaluations of board, committee, and increasingly, individual director performance,” said Paul Washington, executive director of The Conference Board ESG Center. “While CEOs typically participate in that process as board members, the rest of the C-suite is often not involved. Boards could benefit from seeking input from the Chief Financial, Legal, and Human Resources Officers, and on a rotating basis from other C-suite executives, about board composition, capabilities, and effectiveness.
Additional survey results and insights are below.
Board composition: Refreshment and diversity
• Most (60%) executives trust their boards to prioritize diversity, but only 20% think their own boards are diverse enough.
•Sixty-six percent cite long-tenured directors’ reluctance to leave as the top reason for a lack of board diversity.
Executives are keen on refreshing their boards
•Most (89%) of executives believe at least one of their directors should be replaced; 75% say two or more should be replaced.
This may be due to the C-suite increasingly wanting directors with experience in emerging issues such as cybersecurity and human capital management, the report noted.
In contrast, directors cited (in a separate PwCsurvey) their fellow directors’ behavior as the main reason for wanting board refreshment—specifically, their peers’ unwillingness to challenge management and the tendency to overstep their role.
“Effective corporate governance requires collaboration between boards and management teams,” said Maria Moats, leader, Governance Insights Center at PwC US. “Executives have an active role to play helping directors stay prepared and informed. By working together to bridge their differences and align their thinking, both sides may ultimately have what they need to build trust and prepare the company to tackle future challenges.
Board and director engagement
• Eighty-two percent say their boards do not overstep their role.
•Only 33% say their boards ask probing questions.
•Only 21% think their directors are spending enough time fulfilling their responsibilities.
Board knowledge and expertise
•Sixty-seven percent of executives say their boards have strong financial expertise; 55% say the same regarding operations expertise.
•Sixty-five percent say their boards have at least fair experience in cybersecurity, data security, and data privacy.
•Thirty-nine percent say their boards have poor ESG expertise; 47% say the same regarding climate expertise.
Stakeholder understanding and engagement
•Sixty-eight percent are confident in their boards effectively engage with shareholders.
•Forty-eight percent believe their boards do not fully understand shareholder priorities.
•Fifty-seven percent do not think their boards fully understand the concerns of stakeholders other than shareholders.
“The shifts toward ESG and stakeholder capitalism do not mean the board needs to reinvent the wheel,” said Matteo Tonello, managing director of ESG research at The Conference Board. “The board still has multiple decision-making, oversight, advisory, and engagement roles. Still, these changes do require boards to take a fresh look at their roles and responsibilities and to address more topics than before. Boards—in collaboration with management—should consider how they can build ESG and stakeholder perspectives into existing processes,”