Corporate directors are taking more active oversight and management roles at major corporations in the face of regulatory and investor pressure, according to PriceWaterhouseCooper’s 2011 survey of Corporate Directors (PwC).
The directors reported increased concerns with four major topics: executive compensation, risk management, succession planning and diversity. Shareholders' new right for a nonbinding ‘say on pay’ has had two significant impacts, according to PwC. Not only did 72 percent of directors say they are more carefully reviewing executives’ compensation, they also claim to be disclosing it better to shareholders. Nearly half said they made their write-ups of executive compensation (the Compensation Discussion & Analysis) much clearer, and a third helpfully added an executive summary to it.
Another smaller say-on-pay impact is the increased influence of proxy firms. Even though proxy firms have demonstrated only a weak ability to persuade investors to vote against executive compensation packages — investors agreed with the proxy firms, voting no, in only 38 out of 250 recommended cases — about a quarter of directors report speaking with proxy firms in the past year.
Perhaps more striking in a post-financial collapse brought on in part by a failure of risk management at Wall Street firms, most directors reported that their boards aren’t very effective at monitoring plans to reduce risk, whether financial, environmental, or IT security. About a third of directors were also critical of succession planning at their companies, and a majority (59 percent) wants to spend more time on it.
Despite a globalized economy and the increased purchasing power of women and minorities giving companies good business reasons to diversify their boards, directors reported that diversification was a big challenge. Nearly two thirds found it hard to add racial diversity, while more than half found it hard to include women. That’s striking given the increased business success of women and people of color in the past couple of decades.
In addition to these substantive concerns, the PwC survey highlighted one lighter divide within boardrooms: the old school board members and the new wave of tech-savvy folk. Eighty percent of directors either already use tablets and smart phones to get board materials, or would like to. The directors most likely to oppose switching to the digital age have served at least five years on the board of a company that has stuck with the paper approach.
