September 28, 2020 – Amidst the upheaval caused by COVID-19, nationwide social unrest and other events of 2020, boards have shown increased awareness and focus on environmental, social and governance (ESG) issues, company strategy, corporate culture and executive compensation, according to PwC’s Annual Corporate Directors Survey. Although they are making progress in some areas, boards still struggle to take the next step in others.
While a majority of corporate directors (84 percent) agree that companies should be doing more to promote gender and racial diversity in the workplace, they are not willing to stake executive pay on it. Only 39 percent of directors think diversity and inclusion goals should be included in executive compensation plans. And although directors say they support workplace diversity generally, only 34 percent say it is very important to have racial diversity on the board itself.
Further, directors say they aren’t seeing enough opportunities to bring refreshment (and diversity) into the board. Nearly half of directors (49 percent) think at least one fellow board member should be replaced. But board refreshment is not a priority; 10 percent of respondents say their board doesn’t have a plan in place for succession at all, and 33 percent say that those plans are developed ad hoc.
“Corporate directors are still figuring out how to take the next meaningful step on diversity within the organization. Boards can start by making sure that they are receiving diversity data and including diversity in executive compensation plans,” said Paula Loop, Governance Insights Leader, PwC US. “It’s also important for directors to lead by example and make diversity a priority within the boardroom itself. Boards can use succession planning to strengthen the boardroom by introducing a broad range of experience, thought and voice.”
While the COVID-19 pandemic has shifted boardroom priorities in many ways, ESG continues to grow in importance. Directors are much more likely to say that disclosing a company’s efforts on ESG-related issues should be a priority for management (41 percent vs. 30 percent in 2019), and nearly half of directors (45 percent) say that ESG issues are regularly a part of the board’s agenda, an increase from just 34 percent last year.
“Directors are coming around to the idea that ESG is about opportunity as well as risk,” says Paul DeNicola, Principal, Governance Insights Center, PwC US. “Boards are starting to link purpose to company strategy, and realizing that in order to track their progress on critical items, such as climate change and income inequality, they will need accurate reporting and data on ESG.”
Few could have envisioned the global health crisis and accompanying economic fallout caused by COVID-19. While the challenges boards face are significant, this moment also creates opportunities. Only 37 percent of directors say their board fully understands the company’s crisis management plan – an area demanding more attention from boards in the months to come. Forward-thinking boards will use this moment to find ways to inspire positive change, and through strong leadership, may be able to leverage the crisis into changes in board composition, revamped practices, re-envisioned diversity and inclusion efforts and re-focused priorities.
Additional Key Findings
- More than a quarter (28 percent) of directors said their companies had not taken any steps at all to address an economic downturn in the 12 months prior to the recession.
- 98 percent of directors said their management teams did a good or excellent job dealing with interruptions in internal operations due to COVID-19 – even if customers and clients may not agree.
- Female and male directors disagree about what inhibits board diversity. 44 percent of female directors believe board leadership is not invested in board diversity vs. 20 percent of male directors.
- 32 percent of female directors believe the CEO is not invested in board diversity compared to 9 percent of their male counterparts.
- 47 percent of male directors point to a lack of qualified candidates as a reason for diversity lagging on boards compared to 25 percent of their female counterparts.
- 67 percent of directors believe that issues like climate change should be taken into account when developing company strategy.
- 50 percent of directors say their board fully understands ESG issues impacting the company.
- 38 percent of directors think those issues actually have a financial impact on the company.
- 49 percent say a succession plan is shared with the full board.
About the Survey
PwC’s Annual Corporate Directors Survey has gauged the views of public company directors from across the United States on a variety of corporate governance matters for more than a decade. In 2020, 693 directors participated in our survey. The respondents represent a cross-section of companies from over a dozen industries, 75 percent of which have annual revenues of more than $1 billion. Seventy-six percent (76 percent) of the respondents were men and 24 percent were women. Board tenure varied, but 61 percent of respondents have served on their board for more than five years. The survey was conducted from February to March 2020.
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