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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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.”
Joe: Hello and welcome to On Boards, a deep diive at what drives business success. I’m I’m Joe Ayoub, and I’m here with my co-host, Raza Shaikh. On Boards is about boards of directors and advisors in all aspects of board governance. Twice a month, this is the place to hear about one of the most critically important aspects of any company or organization, its board of directors or advisors, as well as the important issues that are facing boards, company leadership, and stakeholders.
Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it means to be an effective board member, the challenges boards are facing and how they’re addressing those challenges, and how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Maria Castañón Moats. Maria is the leader of PriceWaterhouseCooper’s Governance Insight Center. PwC is one of [00:01:00] the largest professional service networks in the world and its Governance Insight Center works to strengthen the connection between directors, executive teams and investors by helping them navigate the evolving world of the governance landscape.
Raza: Maria is also a PwC audit partner and has previously held several important PwC leadership roles, including serving as its Chief Diversity Officer from 2011 to 2016. After that, and before becoming the leader of the Governance Insight Center. Maria served as Vice-Chair, Mexico and US Assurance Leader.
In this capacity. She oversaw PwC’s national assurance practice, including strategy and all operational aspects to oversee a practice of approximately 20,000 professionals.
Joe: Maria has also held several board roles, including with the March of Dimes and currently serves on the board of [00:02:00] trustees for the Dallas Theater Center, the advisory board of the University of Texas at El Paso College of Business Administration and the board and audit committee of DonorsChoose. And, Maria is a returning guest, our very first returning guest.
A great way to begin Season 7 of On Boards, our 50th episode. Maria, thank you so much for joining us today. We couldn’t ask for a better guest to help us kick off Season 7.
Maria: Thanks, Joe. It’s great to be with you and with Raza. And all the honor of being on the 50th episode and the first guest of Season 7, so thank you very much.
Joe: Great. We want to talk to you today about PwCs 2022 Annual Corporate Directors Survey, but before we do, I know you’ve just attended the Corporate Directors Exchange. Let’s talk a little bit about that, then we can get into the survey.
Maria: Sure. Thanks, [00:03:00] Joe. Our Corporate Directors Exchange is a program, a gathering of directors on public company boards, primarily Fortune 1000 and above, that we host every year in January at around the same time. With the pandemic, we started also not only having a hundred plus people kind of in person peer-to-peer exchange ideas, but importantly with the pandemic, we added a live stream, so equally another 120 plus, so over 240 directors.
It was terrific, and let me tell you some of the things we touched on because I think with the Annual Corporate Directors Survey, we’re going to hit on some of these topics, so our theme was really acting today for a better tomorrow.
It’s about how you lead in the boardroom, and I think you and Raza touch on that every episode, but it’s about bringing leadership into the boardroom and so it was our CEO and senior partner, Tim Ryan, tells us what he is hearing from CEOs, and that’s important because as you know, directors advise CEOs [00:04:00] and his or her team. We touched on geopolitical environment. I’m looking at the agenda, shareholder engagement and activism. It continues to be important.
We touched on what’s happening in Washington, and that was day one, and then we had a guest speaker Jonathan Haidt, actually, that evening for the dinner and he’s an NYU professor and studies really how we behave with one another and why, and he’s been on several shows that you would recognize. But we had him on Friday, the directors go off and do a peer exchange, two sessions, and they come back and we addressed trust, which we’ll touch on in our Annual Corporate Directors Survey as you know, climate and then cyber, and that was it. For two days on site with a hundred plus directors and then the live stream, it was terrific.
Joe: Now, that sounds great. I want to say something though. Some people will hear this and say, “Well, this is public company boards. I’m in a private company.” And my view is that while not every single thing applies, we’re [00:05:00] talking about best practice for boards. It’s not necessarily just public company boards. In many instances, public company boards kind of lead the way because they’re under scrutiny, because they’re highly regulated, but the work they do and the changes that are occurring are all relevant, almost all relevant, to private companies as well. Would you agree with that?
Maria: I agree with that. We talk, my team and I I lead a, a small group of professionals, all deep governance experts, some attorneys by way of background, others former auditors, or risk and, and control specialists. But we also meet with sponsors of private equity portfolios, portfolio company boards, because they’re trying to really think about what around governance do they want to focus on more. Lots of times it’s just around the agenda. So the agenda for a private company board would be very similar to a public company board, and others are around thinking through independence of directors and how do you start to do more of that?[00:06:00]
I mean, you said it earlier. I sit on some not-for-profit boards. As a current partner, I can’t sit on corporate boards yet. We talk about same things. It’s about governance and best practices and how do you bring that objectivity into the boardroom and advise management.
Joe: I’m glad you said that. I said private companies, it’s all companies, it’s nonprofits as well. A really well-run nonprofit organization should be looking to these same practices. Not everything, but a lot of it, and certainly most of what we’re going to talk about today.
Let’s move on to the corporate director survey. If you could just let everyone know exactly what this is and I’ll just say, I said this earlier before we started, this is the best one of its kind that I see every year. I really think it’s comprehensive, but also, to me, it’s very easy to get to. It really brings forward where the trends are, so if you could just let us know how it comes into being and when this one was actually published.
Maria: Sure. So it’s a survey that PwC have been conducting over 12 [00:07:00] years. I think it’s closer to 15. We go in the field in the spring and we issue it in the fall, so it was issued last October of ’22. We started talking about it once we issued it in the late fall, and we use it actually also to form the basis of not only what we talk about at the Corporate Directors Exchange, but kind of the rest of the year, so it’s very useful tool.
Over 800 respondents at or around, that was the number this past year, but it’s hundreds. It’s not 50 people. It’s like hundreds of directors telling us what they think, so it’s the Annual Corporate Directors Survey.
The way directors use it, what I’ve been told, is they read it and then they share it with one another, others on their board, and then they kind of look at, do we have the right topics? How do we feel about what the survey says around engagement or cyber or whether or not we should have a separate risk committee, all those kinds of things. I think it’s useful because it sparks a conversation amongst the board members. They could also share it with the CEO. It’s super helpful.
In fact, we started a survey two years ago, that actually surveys the exec [00:08:00] team with similar questions, but it’s a super useful survey and if you read publications throughout the year, they pick up on the different statistics throughout the year as well.
Joe: I think it’s great. The first thing we wanted to talk about was, what we’re calling, the trust gap, and right at the beginning, it talks about this, 87% of business executives believe consumers highly trust their company, whereas only 30% of consumers actually do.
The fact that the gap exists is not surprising. The magnitude of the gap, I find very surprising, and I think this is a quote from you, “This lands at the feet of the board of directors as stewards of the company.” Talk about what that means for the board. Is it an opportunity to address? Is it something they should be concerned about? How should boards be looking at this?
Maria: Sure. Thank you. Well, the first thing to think about is, you [00:09:00] hear a lot about trust, and we had a session on this at the Corporate Directors Exchange directors should engage in the conversation around, what does that really mean for our organization, and what is the management team really doing to think about trust with all of its stakeholders?
It’s a huge opportunity to think about how the company is building that trust, maintaining that trust with stakeholders, whether that’s shareholders, employees, the community, and it goes back to really what the company stands; its mission, its values. That’s what directors should be doing.
At the end of the day, Joe, there needs to be a level of transparency with all of these stakeholders so that they better understand the company. They can maintain that trust.
When I talk about transparency and disclosure, that’s separate from what a regulator would require in terms of disclosure. It’s not a compliance element, it’s what does the company stand for? How does the want the company [00:10:00] want to be transparent and communicate with its stakeholders?
Joe: If a company is really, really proactive in being transparent about its strategy, its risk, its processes, is it your feeling that that does address the trust issue, or are there other things they should be doing as well? Or is that really a great start to it?
Maria: Well, it’s a great start, but I will tell you that 71% of really directors told us that it starts with engaging, talking , communicating with shareholders. It’s not enough to have it written, but it’s also like that engagement, and we talked a lot about engagement also in the survey. We asked questions around that because you may recall that directors, we’re talking about directors, were not required necessarily or even encouraged to really engage in discussions, I’ll call it that, with shareholders just five years ago, and that’s been increasing significantly.
Joe: Hmm, I think that’s a great trend. One [00:11:00] thing you mentioned was this idea of a separate risk committee. Does that come up in some of what you’re seeing, and where does that kind of stand in the general governance landscape?
Maria: We often get the question, and that’s why it’s often in the survey around when you think about the board’s role in overseeing strategy and risk, and you think about the last three years, in particular since the pandemic, the amount of risks, the speed at which these risks develop, there’s a lot coming up to the board. And so the question is, should these risks be full board issues or individual committee issues, and should we have a separate risk committee? And what would go to the separate risk committee? And those questions continue.
The percentage of public company boards that have a separate risk committee continues to be at or around 15%, which is what it’s been historically so it hasn’t ticked up too much. I think, Joe, it’s because people look at the risk and at the end of the day, there are some that will require the full [00:12:00] board to really spend time with those risks. Whether those risks have to do with big IT, cyber-related risks or whether the risks have to do with part of the company’s strategy around acquisitions in a simple example, it really is up to the company.
It differs, but at the end of the day, they really have to decide who’s going to do the work, and as you know, a lot of work gets done in committees. If there’s a lot of work to be done around this risk, well then, maybe there should be a separate risk committee and maybe that’s what it should be, and then a read out to the full board.
Maria: The percentage continues to be low.
Joe: I think the last thing you said about, a lot of boards look at risk as a board responsibility, and if you kind of assign it, if you will, to a committee, some board members think maybe we are not as involved with the risk assessment of risk as we should be. I think that’s part of what’s going on anyway.
Maria: I’ll say one other thing about risk, that that is going on, looking at the enterprise risk management [00:13:00] assessment, kind of the system that management uses to determine which ones are the significant risks, and tying those back to the strategy and taking the board through that conversation is really important.
I think the full board does that. After that, they can decide if certain committees would oversee certain risks and if you need a separate committee.
Joe: Yeah, great. That’s perfect. Thank you.
Raza: Maria, the next key finding that we picked for our conversation here is, let’s call it, the pushback on ESG or maybe the conversation or dialogue on ESG. By the way, we’ll share the full survey to our audience as well so they can go through other findings, but we thought this one was interesting.
Only 45% of directors believe ESG has an impact on long-term performance. At the same time, we see a bunch of other things where there at least has been pushback of sorts. What explains this phenomena towards ESG, but then directors not really [00:14:00] believing that that’s what they need for performance?
Maria: And this 45% really concerned me, Raza, 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. But so what I think is happening is there is a bit of ESG fatigue in terms of the conversation amongst directors and frankly companies.
What I would say to that is, that’s fine, whether it’s fatigue, whether it’s pushback, which in any conversation, it’s good to hear both sides; pro-ESG and anti-ESG, it’s good to understand it. But what I would tell you about this is, one thing to think about, if you don’t want to call it ESG, think about the environment that we’re in going into headlines, economics, we could be heading into a recession. Headwinds are more significant than they’ve been in the past, rates continue to be high, all these things that are happening.
The question companies [00:15:00] need to ask and directors is, “Okay, if we don’t want to call it ESG, how are we to differentiate? How is the company really going to differentiate? That differentiation, which is really trying to get more market share, growing revenues, all of that, how do you think about that relative to strategies around the environment and climate, strategies around social in your people?
I think they’re doing it, if you don’t want to call it ESG, but there needs to be this discussion around how you differentiate, and it’s the elements under ESG. That’s what I would tell people to really focus on when you think about ESG.
It’s separate from, of course, the reporting that’s coming from a regulator. At the end of the day, it goes back to stakeholders. What is it that your stakeholders want to know about you to trust you, to invest in you, to believe in you, which is the first part of the conversation we just had, and how are you addressing all of that in terms of your strategy, and how are you differentiating it to be successful over the [00:16:00] long term.
Raza: Joe and I often talk about this, that in some ways ESG has become a suitcase or an umbrella word, but in other ways, it’s also a tension between the quarterly performance versus the long term. I think it probably is great for the boards to be looking at long-term sustainable, and as you were mentioning, differentiated growth for the company regardless of whether you call it ESG or whatever it actually means for your company.
Maria: That’s right, and that’s why when you think about directors and really going through and understanding what your shareholders, because we’re talking about bottom line your shareholders want from you, we’ve seen that increase and we saw that in our survey that five years ago when we asked directors, how often do you engage with shareholders, 42% told us that they engaged with shareholders. Now, that’s 60%, so it’s significantly a lot higher.
You’re not engaging with your shareholders to really understand and educate them [00:17:00] on your long-term strategy around all these elements of ESG, yet kind of what’s underneath the umbrella of ESG and what is important and significant to your company because you’re in the business of X. A staffing company is different than a technology company, different than a downstream manufacturer, so 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.
Joe: Quick follow up to the question that Raza raised. You had mentioned that we’re going into some economic headwinds.
Joe: When that happens, might there be even more of a tendency for people to be focused on short term because they don’t want it to be bad this year or next year or the year after?
It would seem like there could be a reaction to kind of revert to [00:18:00] what culture has traditionally said, which is, “Let’s focus on the quarterly reports. Don’t worry about the long term, we got to get through this year or next year.” Is that something that we might see this year?
Maria: I think for sure that would be natural in a tendency, but that’s where you go back to, if you are really going to differentiate, then what are you going to do now? What seeds will you plant now for that long-term strategy, and are you talking about that, and do people understand that really well? There’s a question, Joe. That’ll be the tendency. I mean, we might be going into a recession. When was the last time we said that in the last few years?
But at the same token, you want to go ahead and gain that market share and be the employer of choice, so there are a lot of things that that’s why I started saying that our theme was around how you lead in a boardroom. Asking all those questions just like we are right now of the company’s strategy and why it makes sense, short term and long term, is critically important.[00:19:00]
Raza: I think at the end of the day, it is a good debate. It is a debate for business and it is a debate for society that is happening, and I think it evolves us together towards a more sustainable future.
Maria: I’ll say one more thing about ESG that was interesting. We can cut the data in different ways in the Annual Corporate Directors Survey. We found that large companies, 10 billion and above in revenues, told us that 70% of the directors said, “Look, we’ve talked about climate, we’ve discussed ESG issues.” But if it’s 1 billion and below, only 40% told us that they had this on the agenda and we’re talking about it.
We have to recognize that people are in different places, and it could be that larger companies have more resources, et cetera, are talking about ESG, so everybody’s in a different place in terms of understanding the strategy around ESG.
Raza: It’s not a one size fits all either.
Joe: Another thing we wanted to talk about is CEOs, in particular CEOs serving on [00:20:00] other boards. According to the survey, 31% believe that sitting CEOs should not serve on boards outside their own company. I think I understand some of the reasons why, but it seems like if you want your CEO to be the best CEO he or she can be, that this is a great experience because the board-CEO relationship is so important, and for a CEO to have the opportunity to sit in that other seat, seems to me could be enormously valuable for pretty much any leader. Talk about how we can address that or how companies do address that.
Maria: Sure. I agree with you, Joe. I think it’s of tremendous value for a CEO to serve on one other board, and I completely understand that the demands on a CEO’s time are more than not just like the demands of directors on boards. I mean, people are busier particularly in the last three years.
I think the concern is valid [00:21:00] because you don’t want your CEO to be distracted. But on the other hand, I, for one, am fully supportive of having that CEO for the reasons you stated, be on a board. There’s definitely an overarching concern here around overboarding for everybody, not just the CEO, but also other directors.
It’s been a focus for investors. There are different policies out there. You need to know who owns the stock of your company to understand the different policies they have. Some may say, “We don’t like a CEO serving.” Well, that could be one investor’s position. On the other extreme, there are some investors that say, “You tell us why everybody that’s serving on boards and your CEO, why you’re fine with it, and you could just explain that to me.”
it’s important to know what the policies are around that, but it’s also important for the board to, I think, support his or her CEO serving on an outside board.
Joe: Shouldn’t CEOs have an opportunity for some kind of educational enhancement? Even if you’re a very, very accomplished CEO, maybe even a serial [00:22:00] CEO, there’s always something to learn, and it would seem like if you’re going to allow CEOs or encourage CEOs to do something to further their perspective, that sitting on someone else’s board could kind of be in that piece, so to the question of, do they have time? Well, if they have time to go to programs, if they have time to do some kind of high-end enhancement, maybe this is one way to do it. Does that fly, do you think?
Maria: Yes it does. Now, I’ll give you an example. 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? That kind of stuff.
But there’s one key thing that I think would be very good for CEOs if they’re serving on outside boards, and that is one of the most important thing that boards do is make sure that they have the right CEO in succession planning, and so a CEO [00:23:00] that sits on an outside board probably knows how that outside board thinks about CEO succession planning.
It’s not a weird thing to bring it up with your own board if it’s on the CEO to say, “CEO succession planning should be on the agenda every year, maybe more often than once a year, and we should talk about who are my potential successors, what experiences they need, so on and so forth,” the whole thing. To me, that’s one thing that could be good of your CEO sitting on another board, that you are likely to have all the right conversations around CEO succession plans.
Joe: Perfect example. Absolutely perfect example. On that note, is there enough discussion at boards about CEO succession? Is that something that most boards are doing, or is that something that they really need to be paying more attention to?
Maria: That’s something they really need to be paying more attention to, which is why I brought it up as an example, and it’s difficult, like everything in life, it’s a difficult conversation to [00:24:00] be having, particularly if it’s a CEO that’s recently in his or her position to say, “Now, let’s talk about who your successor should be and timing thereof, and maybe you talk more about the who and less about the timing.”
But the headlines in the past year, particularly towards the end of ’22, would allow sudden, I’ll call it, CEO departures, and then all of a sudden, the CEO comes in and it’s somebody that happens to be on your board or the former CEO.
Those are the kinds of things that outside in, investors, the public look at and wonder if the board really had a good process for succession planning for that CEO, so to kind of stay out of the headlines on that one and to get ahead of it, that’s why CEO succession planning, but kind of his or her direct reports as well, is critical to do more than once a year.
Joe: Yeah, I agree. Thanks
Raza: Maria, another key finding that jumped at us from the director’s annual survey was about board refreshment.
Raza: [00:25:00] 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.
Raza: What might be going on here, and how can boards solve this board refreshment challenge?
Maria: Yes, so that 48%, Raza, by the way, has been showing up in probably the last five surveys,
Maria: So, 48% would say somebody around this room doesn’t belong, and in those 48%, 19% tell us that two people do not belong, 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.
I mean, in other words, there are several of those. You see them in probably Fortune 250, with term limits or age limits, but you start to see less and less than that as you go deeper into what the public companies do, at Fortune 1000 or even deeper. They don’t like that.[00:26:00]
What I would say is, if it’s not a blunt instrument like term limits or age limits, then likely what needs to be done is board assessments of full board committee and individual members with an action plan that has the two or three things that are going to be done differently, and you start to see that even disclosed in proxies.
Back to transparency, if you’re in large companies, they actually have a practice of saying, “We do these board assessments. Here’s at the level we do them. Here are the two or three things that we’re going to work on to do better.” it doesn’t say, “We’re going to ask Maria off the board.”
But it does show you a process that they go through, and that’s what I think needs to happen. There needs to be always robust individual board member assessments, and there needs to be a plan to rotate members through committees. There needs to be a plan to rotate chairs on committees, and there needs to be [00:27:00] almost like a plan for constantly back to board refreshment, thinking about a pipeline of potential board members that can come on over the next three or five years.
Raza: I think the key here that you mentioned is to include individual member assessments as well, to be allowing for the conversation to compare it with the skill matrix that a board needs for the company to succeed today and beyond, and the individual assessment may provide you with that tool set or reason to have a conversation among the board of how it needs to refresh itself.
Maria: Right. And the other thing to think about it is, 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.
If you [00:28:00] present that picture to every board member, then they can themselves self-assess, kind of, “Where do I fit in? Maybe I was terrific when the company was going through growth and acquisitions and the like, and that was seven or eight years ago, and maybe now that the company is moving to the cloud and doing other things, maybe that’s not me,” and so I then start to think about the fact that I’m probably looking at kind of the backend of my time on this board. But again, it’s because I look to see where this board is going and the skills needed and the strategy, and that’s not me.
Joe: That’s really the goal, that board members really see the big picture. I would say that the fact that 62% of board members won’t enforce policies that would lead to refreshment and the fact that only half of public companies do individual board member assessments both lead me to the conclusion that they don’t want to connect the dots or they’re afraid to connect or they don’t want to confront those realities, which is troubling because [00:29:00] there’s no way to maintain great governance without doing something like this. other than bringing outsiders in.
Is there anything that’s proven or that you’ve seen that you think is particularly effective at actually getting to this? I mean, are there a lot of companies that are good at doing it themselves, or is it really you got to bring in someone else to tell you?
Maria: Yeah, bringing in someone to tell you what you probably already know, but somebody else to tell you, like a third party coming in doing board assessments. I think it’s a good practice to do it, if not every year, every three years or so, getting a third party and in between, you have a good process yourself.
I think third parties could be helpful tremendously, because boards, by kind of definition, 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,
Raza: I think, Maria, you earlier alluded to that the job of the CEO and the skill and the complexity of the environment [00:30:00] that they operate in has been significantly increasing. I think that equally applies to boards as well, and I think it is high time for boards to look at themselves and be accountable and see that they have brought together the skills that are needed for the company now and for the future.
Maria: There’s no question. I mean, we talked about this at the Corporate Directors Exchange, but the top issues that CEOs are dealing with is really looking at moving to the cloud. I mean, that’s key, what’s your strategy to transform and to move to the cloud, de-risking from China, supply chain, et cetera, these are hard issues.
Climate, what to do about it? Back to ESG and differentiation and how do you put that in the long-term strategy? All of these topics have new and emerging issues, so that’s why getting back to who should be on your board, and this is just part of the company’s strategy. I think it may not be individuals that were fantastic before all these things that [00:31:00] I just said.
Joe: It would seem to me that since identifying and managing risk is so critical to a board, maybe more critical now than ever because it’s become so more complex, that the idea of a diverse and ” more fit for the purpose” board is even more compelling because, if nothing else, you have to have a board or 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, then I think, again, the board may not be doing its job because that is such a fundamentally important responsibility that boards have.
Maria: Right. Let me give you a few more stats. We have a section around just diversity, with board composition, how are you making changes in your board? And so, 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 [00:32:00] bring in a diverse board member, so 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 for full diversity skillsets and the like of their board members, so I’m going back to transparency.
If best practice is to transparently just say who’s on your board, don’t make people guess what are their skillsets, male or female, ethnicity, et cetera, so that’s the trend. It’s not like you can hide from this much longer. It’s all out there.
Joe: Right. Really. Exactly. That part of the transparency should be standard practice, but it’s not yet, although it sounds like it’s getting there.
Maria: Let me give you another one here that was interesting. One of the questions asked was something along the lines of, if you had more time to spend and you’re all busy people, where would you want to spend it? Like what area of [00:33:00] oversight would you need to spend more time in? And people would always come back and it goes back several surveys. 37% said, “Hey, the number one, strategy, we want to spend more time on strategy.” That’s always.
The number two this year, and it went past cyber and IT risk and culture and all kinds of stuff, is talent management. Talent management was right after strategy. 32% said, “We’re going to spend more time with talent”. This gets back to getting away from board composition, CEO succession planning, his or her direct report, the talent that’s within the organization is so important for all of these things that I just mentioned around the strategy, different supply chains and de-risking from China, going to the cloud.
All this is hard, so who are the people, and all this in light of a recession and you might be letting some people go; layoffs, et cetera, which are the headlines right now, so how is that working? As a board, you want to make sure that if you need to cut workforce, it’s not in areas where you actually need talent to [00:34:00] advance the strategy.
I thought that was a really good area of the survey, really thinking about the talent within the organization and how that’s the right talent to execute on the strategy. Likewise, board composition, are they the right members to help execute on the strategy or oversee the strategy?
Joe: On the board composition side, are you seeing companies looking to bring on chief people officer, people with that background, onto the board to address exactly the issues you’re talking about. If people are the most important asset or among the most important assets, shouldn’t the board have that skill, experience, that background. So that they’re really fully understanding or able to understand what the policies are and how they could maybe improve.
Maria: What you’ll see with kind of new directors joining boards and there’s some that have stats on this, who are these people joining the boards, what’s their background, you see a more diverse background than in the past. In the past, it was [00:35:00] CEOs joining boards, CFOs after that and like group president, CEOs, et cetera.
Now, you start to see more of somebody that was chief compliance and legal people, or even diversity in their background, but you also see that those folks had some P&L responsibility, some operating responsibility, because they’re still expected to come onto this board and weigh in not just on the people issues, but on all the risk, on all the elements of the strategy, so they have to be able to kind of hit the ground running when it comes to full board responsibilities.
Joe: Sure, it makes sense.
Maria: These folks exist, so the good news is the skillsets coming onto these boards are more diverse as are the individuals coming onto the boards.
Joe: That can only make it better. I mean, I don’t think there’s any way to see it otherwise, really, so that’s good news.
Joe: Maria, it’s been great speaking with you again. Thank [00:36:00] you so much for coming back and joining us today.
Maria: I’m willing to join. I don’t have to be a special guest on the 50th episode, the first episode or the seventh episode of a series, but just anytime, Joe and Raza, that you’d like to have me on, it’s my pleasure.
Joe: Fantastic. Well, anytime you are on, you are a special guest, and thank you all for listening to On Boards with our special guest, Maria Moats.
Raza: Please visit our website at OnBoardsPodcast.com. That’s OnBoardsPodcast.com. We’d love to hear your comments, suggestions, and feedback. And if you are not already a subscriber, please be sure to subscribe to Apple Podcast, Spotify, or wherever you get your podcast, and remember to leave us a five-star review.
Joe: Please stay safe. Take care of yourselves, your families, and your communities as best you can. We hope you’ll tune in for the next episode of On Boards. Thanks.