NACD’s Flagship Annual Survey Reveals Friction Between Innovation and Cyber Risks, Shows Slow but Steady Increase in Women on Boards
WASHINGTON, Dec. 11, 2019 (GLOBE NEWSWIRE) -- The National Association of Corporate Directors (NACD), the authority on boardroom practices representing more than 20,000 board members, today released the 2019–2020 NACD Public Company Governance Survey, the only survey of its kind that provides an overview of the current state of the American boardroom. The report offers detailed insights into governance attributes and practices, including director priorities and trends, board size and structure, board composition, and key oversight practices.
In this survey of more than 500 public-company directors, board members identified growing business-model disruptions (52%), a slowing global economy (51%), and increased competition for talent (50%) as the top trends most likely to impact their organization over the next 12 months. Nearly 7 in 10 (68%) of directors report that their company can no longer count on extending its historical strategy over the next five years.
“Directors are cognizant that both business-model disruptions and a slowing global economy present twin and simultaneous threats to their companies,” said Peter Gleason, CEO of NACD. “These divergent trends create a potential challenge: how to balance a growth and disruption mind-set to stave off competition with preparing for the impact of an economic slowdown. This challenge will require boards to proactively work with management to shape strategy on a continuous basis.”
Outlined below are highlights of the survey’s key findings, along with recommendations.
Public companies face a conundrum requiring them to navigate two divergent business forces simultaneously.
- Directors identify growing business-model disruptions (52%) and a slowing global economy (51%) as the top trends most likely to impact their organization over the next 12 months.
Public companies must also confront growing friction between the need to (digitally) innovate and the effective management of cyber risks.
- Opportunities now abound for companies to adopt emerging technologies to buttress their growth and respond to disruptive competitors. These new technologies also come with risk, increasing opportunities for cyberattackers and heightening exposure to data-privacy missteps. Boards must work with their management teams to reconcile the need to transform themselves digitally with the need to ensure underlying data assets are properly secured. Sixty-one percent of directors report that they would be willing to compromise on cybersecurity to achieve business objectives, while 28 percent prioritize cybersecurity above all else.
For most companies, current strategies will become irrelevant in the next five years.
- Sixty-eight percent of responding directors report that their company can no longer count on extending its historical strategy over the next five years. Future growth will likely depend on the adoption of a different business model and an entirely new set of assumptions about what success will look like.
Boards seek to improve their effectiveness in core oversight areas, but don’t believe they need to spend more time in these areas.
- The majority of directors seek to improve core oversight activities over the next year: strategy execution (63%), strategy development (61%), and cybersecurity (60%). Yet, more than 70 percent of directors believe they already spend enough meeting time on each of these topics. This suggests that to improve in these areas, boards must maximize the return on the time that the board spends together and with management and consider changing existing oversight practices.
- Unfortunately, activities that could help board oversight effectiveness, such as better meeting management (33%) and enhanced board-agenda planning (37%), rank at the bottom of current improvement priorities.
More and more women are joining boards, but progress is happening only on mid- and large-cap organizations.
- Between 2017 and 2019, the percentage of women on Russell 3000 boards rose from 15 to 19 percent. Most of this growth is explained by an increasing number of women serving on boards of mid- and large-cap organizations rather than small- or mega-cap ones, as mega-cap companies already tend to have high percentages of women while small-cap companies have been slow to embrace this trend.
Board refreshment in the past year continued to focus on candidates with traditional skills, such as executive leadership (60%) and finance (40%). However, skills areas that support growing business needs are often neglected.
- Skills and backgrounds in areas such as entrepreneurship, cybersecurity, and human capital were present in just 2 percent of new directors respectively.
Board-committee structures, outside of the three standing committees, remained largely the same over the past three years.
- This is despite a growing emphasis on issues such as digital innovation and transformation; cybersecurity; environmental, social, and governance (ESG) issues; human capital; and innovation, which have not yet led to the widespread establishment of additional board committees. During that same time period, the average public-company board size remained steady at about 10 individuals.
Board oversight of human capital is maturing.
- Eighty-two percent of responding directors report that their organizations possess strong “speak-up” cultures, where employees feel comfortable raising concerns about alleged misconduct.
- Most directors (77%) are comfortable with oversight of current and future talent needs; just 43 percent have reviewed charters to ensure that talent oversight responsibilities are effectively allocated across the board.
- Finally, only 34 percent have set clear expectations for what the board requires from management.
ESG is becoming commonplace in the boardroom, though more work remains.
- Nearly 80 percent of public-company boards now engage with ESG issues in some meaningful way. Most focus on ensuring linkages to strategy and risk. Discussions with investors about ESG often center on elements of the S (social issues), with an emphasis on human capital (65%) and diversity (74%).
“This report serves as a valuable resource for boards who seek affirmation that their governance practices are effective, fit for purpose, and clearly communicated to stakeholders,” said Gleason. “Boards can use the report as a reality check and to validate current approaches, consider specific governance changes in the upcoming year, and identify emerging issues that demand deeper board engagement.”
The 2019–2020 NACD Public Company Governance Survey details responses from more than 500 public-company directors on more than 80 survey questions, and was conducted July through August 2019 by NACD, with additional board-governance analysis of the Russell 3000 from Main Data Group, a provider of executive-compensation benchmarking and corporate governance data and analytics. This year’s survey was expanded to include new questions in key oversight: Who from management reports to the board? What is the quality of information received by the board from management? Where does primary responsibility for oversight reside, and when is it scheduled on the board calendar?
To download your copy of the report, visit www.nacdonline.org/survey.
About NACD
The National Association of Corporate Directors (NACD) empowers more than 20,000 directors to lead with confidence in the boardroom. As the recognized authority on leading boardroom practices, NACD helps boards strengthen investor trust and public confidence by ensuring that today’s directors are well prepared for tomorrow’s challenges. World-class boards join NACD to elevate performance, gain foresight, and instill confidence. Fostering collaboration among directors, investors, and corporate governance stakeholders, NACD has been setting the standard for responsible board leadership for 40 years. To learn more about NACD, visit www.NACDonline.org.
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