Discontent in the Boardroom Reaches All-Time High, According to PwC’s 2017 Annual Corporate Directors Survey
Almost half (46 percent) of public company directors say a colleague needs to be replaced, according to PwC’s 2017 Annual Corporate Directors Survey. The report compiles insights from 884 board members to examine director sentiment across a range of governance issues – many of which point to stark disconnections between directors and investors.
“In a divisive time, our survey findings show that even boardrooms aren’t immune,” says Paula Loop, Leader of PwC’s Governance Insights Center. “Investors are pushing forward on a progressive agenda, and while directors have made strides with taking action on performance assessments and warming up to shareholder engagement, there’s still more work to do on areas such as increasing boardroom diversity— including gender, ethnic and socio-economic diversity—prioritizing key societal issues and challenging management on strategy.”
Core topics addressed in the survey include: board refreshment, diversity, increasing focus on environmental, social and governance (ESG) issues, engaging with shareholders, executive pay and cybersecurity oversight. Key findings include:
- Director discontent with peers is on the rise. Almost half (46 percent) of directors say at least one colleague should be replaced. And yet, only 15 percent said that a member of their board was provided with counsel or was not re-nominated as a result of the board assessment process.
- Directors grapple with achieving – and even defining – diversity. While directors say that board diversity is valuable and the vast majority say their boards are taking steps to increase diversity, they don’t all see benefits beyond the boardroom. More than 40 percent say board diversity does not improve company performance and more than half of directors say their boards are already sufficiently diverse. Surprisingly, almost one in six of respondents (16 percent) think diversity on their board has had no benefit.
- Divided on racial diversity: Despite essential dialogues surrounding race taking place nationally, nearly a quarter (24 percent) of respondents say racial diversity is “not at all important” in achieving diversity of thought. And while it represents the minority, a troubling (almost 10 percent) of directors say their boards have no racial diversity – and do not need it.
- Men and women are split on the evolution of diversity: Women and men view gender diversity in the boardroom differently. Women are more than twice as likely to say it is happening too slowly, but men are six times more likely to say there is too much of a focus on gender diversity.
- Tenure affects diversity perspectives: Newer directors are significantly more likely to value both racial and gender diversity on the board than colleagues who have served on board for 10 or more years. Eighty-four percent of board members with shorter tenure (five years or less) say that racial diversity is important compared to 65 percent of board members with tenures of 10 years or more.
- Environmental issues struggle to break through in the boardroom. ESG broke through with broad and newfound investor support in the 2017 proxy season. However, almost one third of directors (30 percent) indicate they do not have and do not need expertise in this area (the highest such response in any category). Additionally, 40 percent say environmental issues should not be taken into account at all in forming company strategy.
- Executive pay remains a pain point. The majority of directors (70 percent) at least somewhat agree that executives are overpaid. Two-thirds (66 percent) at least somewhat agree that executive compensation exacerbates income inequality.
- Shareholder engagement is creating returns – but are enough directors on board? Directors have adopted more positive attitudes on shareholder engagement and are now significantly more likely to think direct engagement positively impacts proxy voting (77 percent, up from 59 percent). However, 23 percent still say that directors should not be engaging with shareholders.
- Boards recognize IT and cybersecurity gaps. Directors overwhelmingly agree (72 percent) that their boards need more expertise in addressing these critical issues. Less than one-fifth of directors are satisfied with the current levels of expertise on their boards.
To download the full report, please visit: pwc.com/acds2017.