50. Maria Moats on the important issues facing boards in 2023
Maria Castañón Moats is the leader of PricewaterhouseCoopers' Governance Insights Center and previously served as PwC’s Chief Diversity officer. In this episode we speak with her about PwC’s 2022 Annual Corporate Directors Survey, which included the views of over 700 public company directors, about the important issues facing boards and how directors view them.
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Links:
Maria Moats Bio
2022 PwC Annual Corporate Directors Survey
2022 Consumer Intelligence Series
Big Ideas/Thoughts/Quotes:
PwC Corporate Directors Exchange
The PwC Corporate Directors Exchange is a gathering of directors on public company boards, primarily Fortune 1000 and above, that PwC hosts every year in January. Our theme this year was “Acting today for a better tomorrow” - it’s about bringing leadership into the boardroom.
We touched on the geopolitical environment, shareholder engagement and activism, what's happening in Washington, how we behave with one another and why. We addressed trust, climate and then cyber. For two days onsite with a hundred plus directors in person and another 120+ on live stream, it was terrific.
PwCs 2022 Annual Corporate Directors Survey,
Issue #1: The Trust Gap. While 87% of business executives believe consumers highly trust their company, only 30% of consumers actually do.
"This lands at the feet of the board of directors as stewards of the company.”
In order to maintain trust, there needs to be a level of transparency with all stakeholders so that they better understand the company.
When I talk about transparency and disclosure, that's separate from what a regulator would require. It's not a compliance element, it's what does the company stand for? How does the company want to be transparent and communicate with its stakeholders?
Being transparent about its strategy, its risk, its processes, is a great start, but 71% of directors told us that it starts with engaging, talking, communicating with shareholders. It's not enough to have it written.
Issue #2: Pushback on ESG: Only 45% of directors believe ESG has an impact on long-term performance
That 45% really concerned me because it was slightly higher last year, that whole why ESG and how does that really impact the bottom line, right? Performance profits, I'll call it instead of performance. What I think is happening is there is a bit of ESG fatigue in terms of the conversation amongst directors and companies.
“The question companies and directors need to ask is: if we don't want to call it “ESG”, How is the company really going to differentiate? That differentiation, trying to get more market share, growing revenues - how do you think about that relative to strategies around the environment, climate and social in your people?”
You have to make sure that you're engaging so you could educate them on how you're going to bring forth that long-term value that will come through the elements of ESG, how long that will take, and what that impact, if any, will be on the short term.
Issue #3: 31% believe that sitting CEOs should not serve on boards outside their own company.
I think the concern is valid because you don't want your CEO to be distracted. But on the other hand, I am fully supportive of having that CEO be on a board.
The CEO often sets the agenda for board meetings with the lead director, et cetera, so if they sit on an outside board, then they're probably better at thinking: what should our agendas look like? How often should we discuss different elements of the strategy?
“One of the most important things that boards do is make sure that they have the right CEO in succession planning. If a CEO that sits on an outside board, they probably know how that outside board thinks about CEO succession planning.”
Issue #4: Forty-eight percent of directors want to see a fellow board director replaced. However, 62% say that boards won't enforce any policies that would lead to that result.
Yes, so that 48% has been showing up in probably the last five surveys.
In addition to the 48% of board members that say somebody around this room doesn't belong, 19% tell us that they would replace two or more people—but then they're less willing to enforce policies. And by that, they're probably thinking term limits, age limits, which are not that prevalent.
“There needs to be robust individual board member assessments, and a plan to rotate members through committees. There needs to be a plan to rotate chairs on committees, and there needs to be a plan for constantly thinking about a pipeline of potential board members that can come on over the next three or five years.”
What skills does the board need? What experiences does it need? Is that what you currently have? And if not, how do you get there? You're not making it about individual board members, you're making it about the collective group of people that comprise this board, what are the skills that they need and how does that tie into where the company is going and the strategy and so on and so forth.
“I think third parties are tremendously helpful because boards, form consensus, are collegial and the like. It's always helpful to bring a third person in to tell you what you could be doing better, what they're seeing other boards do, I think it would be helpful.”
Let me give you a few more stats. We have a section around board diversity and how are you making changes in your board? First of all, 36% of the directors in the survey told us that they've just increased the size of the board, so they added a board seat to bring in a diverse board member, that's good.
Sixty-seven percent said that they basically replaced a retiring director with a diverse director, a person of color, a woman that's probably they were thinking of as well. But 69% are now disclosing in their own proxy full diversity skillsets and the like of their board members.
“Since identifying and managing risk is so critical to a board—maybe more critical now than ever because it's become so more complex—the idea of a diverse and ‘more fit for the purpose‘ board is even more compelling. Because, if nothing else, you certainly want a board that is able to work with management to identify risk and to understand how much risk they should be taking or not taking. If you're not doing that, the board may not be doing its job because that is such a fundamentally important responsibility that boards have.”
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