Signs of change in boardroom

Tuesday February 12 2019

While 91 per cent of directors say their boards

While 91 per cent of directors say their boards are taking steps to increase diversity, many directors seem cynical. FILE PHOTO  

By Adam Sengooba

Companies are increasingly becoming more global and connected. Cybersecurity and social issues are starting to become top areas of focus in strategy discussions. Meanwhile, directors are also recognising that every board member needs to bring something valuable to the table. PwC’s 2018 Annual Corporate Directors’ Survey shows that directors are listening more, learning more and engaging more. Read on to find out how.

Culture problems
From the #MeToo movement to defrauding customers, corporate culture problems have made plenty of headlines recently. A company’s poor culture can snowball from bad to scandalous causing some very big corporate headaches. As a result, many boards have been taking a hard look at the issue and the risks a bad culture can pose. And they’re trying to identify the root cause. Not surprisingly, directors say the biggest contributor to problems is the tone set by executive management.

But it’s not just the tone at the top anymore, 79 per cent of directors say it’s the tone set by middle management. The board needs to understand which demographic trends are likely to affect the organisation and how management plans to address these challenges. Most importantly, the board needs to consider how its organisation’s culture translates across different departments and operating units.

Corporate culture
Going with your gut may not be enough. A company’s culture isn’t always easy to define. But it drives what people do and don’t do. Boards need to promote a strong culture, one that promotes the right behaviours throughout the company. But how do directors understand and gauge culture?

More importantly, are they getting it right? Nearly two-thirds of directors go with their gut feeling from their interactions with management, though only 32 per cent believe relying on gut instincts is the way to go. So what do directors think is actually useful? Hearing from employees tops the list as the most useful metric for evaluating culture. Employee engagement survey results and exit interview debriefs provide management with insights on company culture.

Social issues, strategy
Social issues are slowly making their way into the boardroom. In fact, directors are becoming more open to considering social issues when discussing company strategy. Issues such as healthcare availability and cost, resource scarcity and human rights are much higher on directors’ radars this year. But there are still many directors who are neutral or don’t think these issues should factor into strategy discussions. At the same time, directors say focus on the topic is overdone. Nearly one-third of directors (29 per cent) say shareholders pay too much attention to it.

Cyber security disconnect
Awareness is hot, crisis management is not. Cybersecurity is a constantly moving target. Still, directors say they’re on the ball. They are more comfortable with what their companies are doing around the topic, and they’re taking steps to prepare for a cyber-incident.

But a cyberattack can happen to any company at any time. Are boards really sure their company won’t be caught flat-footed if there’s a breach? A cyber incident is not the only thing that can bring a company to its knees and force boards into crisis mode. Boards say they are preparing for anything to happen. In fact, 84 per cent say they’ve discussed management’s plans to respond to a crisis, and 64 per cent say they know who their external advisers are. But will that be enough if a crisis actually hits? Less than half say their company has a written escalation policy in place should a crisis occur.

Diversity
Directors see value in diversity but question the motivation. Board diversity has been a hot topic for years, and directors seem to be getting the message. Most recognise the value that diversity adds. Nearly all agree that it brings unique perspectives to the boardroom, and the majority say it enhances board performance. Most also say diversity improves relationships with investors—those who have been strong supporters of it.

While 91 per cent of directors say their boards are taking steps to increase diversity, many directors seem cynical. More than half say board diversity efforts are driven by political correctness. And nearly half think shareholders are too preoccupied with the topic. Some also hint that it is just a “check the box” exercise.

Directors’ performance
Almost half of directors think someone on their board should be replaced. Directors, take a look around the board table. Your fellow board members might not think you’re pulling your weight. In fact, for the second year in a row, 45 per cent of directors think at least one person on their board isn’t measuring up. Today’s rapidly changing business environment means everyone sitting at the board table needs to step up and contribute at the highest level.

Boards should retreat from their usual business and engage in robust and productive dialogue about their performance. Few other activities offer boards the opportunity to think, focus and plan the way a retreat can. With the help of external facilitators, a well-planned board retreat provides a setting for discussing a wider range of matters that do not fit neatly in the regular board or committee agendas.

Cyber security oversight in boardroom
With more than 53,000 confirmed cyber incidents in 2018, it is a good thing that directors say they are prepared. As boards brace for an incident, they are also trying to figure out how best to oversee cybersecurity. Oversight often falls to the audit committee, but there’s a shift happening. In many cases, it is moving from the audit committee to the full board. And some boards are shifting it from one committee to another.

The writer is an Associate Director in Risk Assurance at PwC Uganda.

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