PwC’s 2021 Annual Corporate Directors Survey highlights stark differences in director views compared to prior years in the areas of ESG, diversity & inclusion (D&I) and linking executive compensation to non-financial goals.
Directors are once again calling for new faces on boards — with nearly half (47 percent) saying that at least one fellow board member should be replaced, according to PwC‘s annual directors survey. And while they say their boards are prioritizing racial/ethnic diversity in their future board searches, many directors still have reservations about what’s driving board diversity efforts. (Click here to download the report.)
Last year, most directors (71 percent) believed that board diversity itself would happen naturally. Now, just 33 percent agree with that statement. But despite increased support for board diversity, many directors are skeptical. A majority (58%) of directors say that board diversity is driven by political correctness, up six points from 2020. Directors are now also more likely to say that board diversity results in the nomination of additional unneeded (31 percent) or unqualified (27 percent) candidates.
“Regardless of the motivations behind it, directors are supportive of many methods for achieving diversity,” said Maria Moats, leader of PwC’s Governance Insights Center, which developed the report. “But in order for new board members to provide the most value, deliberate inclusion efforts must be made. Each voice in the boardroom needs to be heard. And boards that are prioritizing an inclusive board culture will be better poised to face whatever comes next.”
More Boards Tying ESG to Strategy, Just Over Half of Directors Favor Linking Executive Compensation to D&I Goals
ESG, like board diversity, is a major area demanding the board’s attention. Many more directors say that ESG is linked to company strategy (64 percent, up from 49 percent in 2020), a strong indicator of how quickly the conversation is changing. But despite intense focus from investors and regulators on ESG, just 25 percent of directors say their boards understand ESG risks very well.
When it comes to holding management accountable, directors are on board. More than half of directors (52 percent) support tying executive compensation to diversity and inclusion goals, up from just 38 percent last year. Female directors are significantly more likely to support those goals: Seventy-four percent are in favor, compared to just 44 percent of male directors. A majority of directors also support inclusion of other non-financial goals, such as customer satisfaction, safety, quality and employee engagement.
Directors Remain Critical of Peer Performance, Question Whether Assessments Enable Honest Feedback
Boards don’t have room for directors who are underperforming or are no longer the right fit for the board. With nearly half (47 percent) of directors saying that at least one fellow member of their board should be replaced and 18 percent saying two or more fellow directors should be replaced, leveraging assessments to drive change and improve effectiveness will be key. But two-thirds of directors (67 percent) say it is difficult to be frank in the review process, and more than half (52 percent) say it is too much of a “check the box” exercise.
Assessments are one of the most critical tools to support board refreshment discussions, yet many boards still only evaluate the board as a whole. Whether it leads to refreshment and newer, more diverse perspectives or helps build expertise—assessments need to be honest, thorough and most importantly, lead to actions that will elevate board effectiveness.
About the survey
PwC’s Governance Insights Center (GIC) has gauged the views of public company directors from across the United States on a variety of corporate governance matters through its Annual Corporate Directors Survey for more than a decade. The 2021 installment of the survey gathered insights from 851 corporate directors across the United States.