News & Insights

Directors Governance Center

October 27, 2015

2015 Director Governance Survey (PwC Report)

PwC recently released its 2015 Annual Corporate Directors Survey, Governing for the long term: Looking down the road with an eye on the rear-view mirror. This year, 783 public company directors responded to the survey, 74% of whom serve on boards of companies with more than $1 billion in annual revenue.

In recent years, pressure from shareholders activists on companies to meet short-term expectations, namely quarterly earnings, has increased, while boards struggle to balance this pressure against what will be best for the company in the long-term. Noting that 84% of activists exit their investments within two years, and 44% of the companies at which activists obtained board seats changed CEOs within 18 month, PwC focused this years survey on how boards maintain focus on both long-term governance issues in light of short-term pressures. Highlights from the survey include the following:**Strategy: looking further down the road* . Directors are focusing on a longer strategic time horizon than they have in prior years, forcing them to take into account macroeconomic trends as part of strategic planning.

*58% of directors say their strategic time horizon is five years or more, an increase of 10% since 2011.

*Most directors still feel that at least some increase in the amount of time the board takes focusing on strategic planning, succession planning, IT risks and talent management would be appropriate .

*Notwithstanding the need for increased time and discussion, most directors are confident in their boards ability to oversee risks facing the company and in their companys approach to talent management.

**Getting Ahead of Shareholder Activism* . Directors are taking more time to anticipate and prepare for shareholder activism in order to be ready to defend the companys long-term strategy against short-term performance pressure.

*69% of directors say their board regularly communicated with the companys largest investors over the past year to ensure a good relationship and hopefully curb any shareholder activism.

*Almost half of directors say their board has engaged in extensive discussions about shareholder activism, with over 50% of directors reporting that, in the past 12 months, their company has used stock monitoring services and reviewed strategic vulnerabilities that could be targeted.

*20% of directors reported that their company had changed its board composition as a protective measure in response to current or future activism.

**Proxy Access* . More than half of directors feel proxy access is appropriate, but believe the ownership threshold for exercising proxy access rights should be greater than the three percent / three year thresholds currently favored by proxy advisor firms.

**Getting Board Composition Right* . Companies and boards are increasingly recognizing the need for the board to have the right expertise and experience in order to be well-positioned to oversee long-term value creation.

*Financial expertise was again the most desired attribute in a director nominee.

*More than 80% of directors say that board diversity enhances board effectiveness and company performance, however the vast majority of directors cite a limited pool of diverse director candidates as a significant obstacle to increased board diversity.

*Almost 40% of directors now say that someone on their board should be replaced, an increase of 9% from just three years ago. PwC publishes this survey annually through its Center for Board Governance, which provides insight on corporate governance issues and trends