During the summer of 2013, PwC conducted its Annual Corporate Directors Survey, with 934 public company directors responding to the Survey. PwC recently released the results of the survey, with the issuance of its report, This report presents key findings of the Survey, emphasizing changes in directors responses from PwCs 2012 survey, and also includes an Executive Summary and an Appendix with information about the directors participating in the Survey. Of the directors responding to the Survey, 70% serve on the boards of companies with annual revenues of more than $1 billion.
The Executive Summary of the report on the Survey states that we are witnessing unprecedented change in the corporate governance world, especially in new perspectives on boardroom composition, higher levels of stakeholder engagement, more emphasis on emerging risks and strategies, and the increasing velocity of change in the digital world.
The report is very well-organized, including sections on (a) board composition, structure and performance, (b) stakeholder communications, (c) board practices, (d) executive compensation, (e) strategy and risk management, (f) IT oversight, and (g) regulatory and governance environment. The report is easy to navigate, being illustrated with many helpful graphs and including side-bars with Additional insights. The Executive Summary presents 17 highlights from the report.
While the report discusses many additional findings from the Survey, we found the following findings especially interesting:
*Motivation for serving on public boards Primary motivations for serving on corporate boards are intellectual stimulation (54%), staying engaged (22%) and wanting to give something back (17%). Only 4% of directors say that they are motivated by compensation and only 3% by enhancement of their personal reputations.
*Most desirable attributes for board candidates Among the attributes considered very important in adding new directors are industry expertise (48%), financial expertise (41%), operational expertise (37%), risk management expertise (36%), international expertise (35%) and technology / digital media expertise (33%). Risk management expertise had the largest jump as a "very important" skill from 2012 to 2013.
*Replacement of board members 35% of directors say that someone on their board should be replaced (up from 31% in 2012), with the top three reasons cited being diminished performance because of aging, lack of required expertise and poor preparation for meetings. Over half the directors who have served on a board for less than one year believe that a fellow director should be replaced; of directors serving over 10 years, less than 25% hold this view. Directors suggested that the primary impediment to replacing underperforming directors is that board leadership is uncomfortable addressing the issue; other impedimentsinclude not having individual director assessments or the board assessment process not being effective.
*Splitting the CEO and chair roles 55% of the directors participating in the Survey indicate that their companies have split the roles of CEO and board chair. Of the companies that continue to have the roles combined, directors indicate that 47% are considering splitting the roles at the time of the next CEO succession.
*Board communications with shareholders and other stakeholders Directors find it at least "somewhat appropriate" for the board to engage in direct communications with shareholders on governance policies (74%), executive compensation (65%) and director nominations (62%). Still,one-third of directors say that the board does not and should not communicate with institutional investors andhalf say that the board does not and should not communicate with retail shareholders.
*Impact of board self-evaluations The Survey finds that board self-evaluations processes are taken seriously, with 57% of boards taking some action on the issues that are identified in the process. The most common changes coming from the self-evaluation process are seeking new directors with additional expertise (35%) and changing the composition of board committees (30%).
*What boards should be focusing their time on in the upcoming year Despite the fact that 59% of directors say that their boards increased the amount of time they spent on strategic planning in the past year, 79% of directors want to spend even more time on strategic planning in the coming year. In the coming year, directors also want their boards to devote more time to succession planning (66%), IT risks (61%) and risk management (60%).
*Responses to say on pay votes 70% of directors say that their boards took some form of action in response to the most recent say on pay vote, an increase from 64% in 2012. The actions taken, however, did not necessarily relate to changes in compensation. Among the most common actions in response to the say on pay votes not directly relating to changes in compensation were enhancing proxy statement disclosure (47%), increasing the use of compensation consultants (27%), and increasing communications with proxy advisory firms and shareholders (27% and 21%). Actions directly relating to compensation included making compensation more performance-related (36%) and altering the peer benchmark groups (21%), but directors suggest that few boards actually reduced compensation (3%). Directors suggest that it takes a relatively high negative vote before they would modify pay practices, with 47% of directors suggesting that changes would be triggered by a say on pay vote receiving less than 70% approval.
*Allocation of responsibility for risk oversight 80% of directors believe that there is a clear allocation of responsibilities for risk oversight between the board and its committees, a significant (17%) improvement over 2012 responses. Still, 50% of directors who believe that there is clarity in the allocationthink that it could be improved.
*Issues regarding oversight of IT risk and opportunities Over the past year, one-third of boards have spent more time overseeing IT, but 61% of directors want to spend even more time considering IT risks in the coming year. 35% of boards are using outside consultants for advice on IT strategy and risk, up from 27% in 2012. 75% of directors consider it important to recruit new directors with technology or digital media experience, up from 68% last year.
*Perceptions about effectiveness of regulatory and enforcement initiatives - 64% of directors say that increased regulatory and enforcement initiatives aimed at protecting investors have not increased investor protections, and 77% of directors believe they have not increased public trust in the corporate sector.
*Perceptions of influence and credibility of proxy advisors 49% of directors say that the recommendations of proxy advisory firms are at least moderately influential on their executive compensation decisions, an increase of 4% from last year. Notwithstanding this increased influence, directors were more skeptical about the credibility of the proxy advisory firms, especially in terms of their independence and the thoroughness of their work.
ThePwC Annual Corporate Governance Survey is published by PwC through its Center for Board Governance, which provides insights on corporate governance issues and trends. We have covered the 2011 and 2012 surveys in previous postings on the Directors Governance Center.
In additional to publishing the report on the Survey, PwC hosted a webcast on September 25, 2013, discussing the Survey. A recorded version of this webcast is available here.PwC has also created a webpage that presents key findings of the Survey.