Boards play increasing role in risk and strategy oversight, study says

Apr 25, 2017
<p>Shareholder activism and sustainability are also growing concerns, particularly at large-cap companies&nbsp;</p>

Boards are increasing their oversight of strategy, risk and shareholder sentiment, although not necessarily shareholder outreach, according to new research by Deloitte and the Society for Corporate Governance.

More than two thirds of respondents say their boards participate in an annual strategy retreat with management. Forty percent of respondents say their boards monitor progress against the company’s strategic plan at every board meeting. And the majority of boards (85 percent) are receiving enhanced information on vulnerabilities and strategic risks.

In addition, the top four audit committee educational programs of the last year – cyber-security risk, an industry-specific topic, a new regulatory issue and risk oversight – reflect boards’ increased responsibility for risk management. 

‘Companies continue to grapple with complex operational, economic and geopolitical risks,’ says Darla Stuckey, president and CEO of the Society for Corporate Governance. ‘It is vital for boards to work with management to navigate risks and opportunities with a comprehensive and adaptable strategy. This is why we see those surveyed emphasizing the amount of time they dedicate to developing and executing a resilient strategy.’

Just over half (55 percent) of the boards covered by the research are being updated on shareholder sentiment and concerns more than once a year. The number of boards that have discussed how to prepare for a shareholder activist increased from 55 percent in 2014 to 74 percent last year.  

Four in 10 (40 percent) respondents say their corporate secretary is engaging with shareholders more than he or she was two years ago. But two thirds of respondents don’t have a shareholder engagement policy, beyond any stock exchange or regulatory filing requirements.

LARGE CAPS LEADING ON SUSTAINABILITY

The study also covers the board’s role in oversight of sustainability strategy and disclosure. It is clear from this research that large caps are coming under more pressure from shareholders in relation to sustainability – and they’re responding: 61 percent of large-cap respondents have received a shareholder proposal related to sustainability in the last year, 72 percent produce a dedicated sustainability report, 60 percent have a dedicated web page on their company website and 28 percent disclose through their proxy statement.

By comparison, only 22 percent of mid-caps produce a sustainability report and only 25 percent of them have a dedicated web page on their company website. At small caps, the percentages are even lower, although the shareholder scrutiny is not as present.

The research suggests that sustainability is currently a board issue only for large caps, with 49 percent of large caps, 27 percent of mid-caps and no small caps reporting that the board or a board committee has oversight of the company’s corporate responsibility or sustainability issues.

There is a close correlation between the percentage of boards with oversight of sustainability strategy and the number of companies that incorporate sustainability-related goals in their broader corporate strategy: 49 percent of large caps, 14 percent of mid-caps and 5 percent of small caps. 

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