PwC 2012 Annual Corporate Directors Survey

Significant changes in corporate governance are causing directors to reconsider their oversight approach as they spend more time on board work, according to the PwC 2012 Annual Corporate Directors Survey issued last month.

Insights from the Boardroom 2012, a PwC Center for Board Governance report which captures the survey’s results, states that challenges remain for directors who expect to increase their focus on critical areas including board composition, risk management, company strategy, and IT oversight. [See details of the survey’s results at the survey web site.] According to Mary Ann Cloyd, leader for PwC’s Center for Board Governance:

Corporate directors are in the spotlight as never before. Our annual corporate director survey shows an attitude shift among directors grappling with change – indicating their progress to-date – and reveals ways to enhance performance and adjust to the altered landscape.

According to the survey of 860 corporate directors, more than half of directors say the amount of time they spent on board work rose last year. Two-thirds of those increased their hours over 10 percent, and one-fifth increased more than 20 percent.

Strategic planning topped the board’s “wish list,” with over 75 percent of directors saying they want to devote more time to it, up from 60 percent of directors who wanted to do so last year.

Denny Beresford, audit committee chair for Legg Mason, who recently retired from two of his boards has seen a focus on strategy over the past year.

In all three boards that I served on over the past year, we’ve spent a lot of time on strategic and business changes. These days in the board meetings the discussion is focused on the challenges of the business.

Some of the areas where directors have enhanced practices to improve their boardroom performance are executive compensation, fraud risk and reconsideration of the board leadership structure (such as splitting the Chair/CEO position) in response to shareholder activism, according to the survey.

Regarding executive compensation, the survey found that almost two-thirds of directors say their companies took some action in response to their 2011 say on pay vote. Nancy Cooper, a director at Teradata, Guardian Life and Mosaic said,

I’ve noticed on all the boards I sit on that we spent a lot of time ensuring compensation is in line with performance. I think that was due to all the [shareholder] focus on executive pay.

Read the September 12 press release and watch an archive of the September 13 webcast.

I was most interested in that portion of the survey dealing with board composition and behavior.

• Questioning board performance.  Nearly one-third of directors believe someone on their board should be replaced. Diminished performance because of aging and lack of expertise were cited as the two primary reasons. A third reason was a director’s chronic lack of preparation for meetings. The longer board members have served, they less likely they are to be sensitive to shareowner votes. 35% of directors surveyed had been on their board for more than a decade.
• Finding new directors. When seeking new board members, 91 percent of directors say they take suggestions from other directors. Search firm and management recommendations were also sought out frequently, with only 11 percent considering investor input for candidates. There is increased communication with institutional investors on other issues but 1/3 of boards still don’t speak with shareowners. A quarter consider racial and gender diversity as “very important” but just like fruit and vegetables, widespread recognition is often different than action.
• Reconsidering board leadership. About half of boards that have a combined CEO and Chair position are already discussing splitting the role at their next CEO succession.
• Self-evaluations prompt changes. Two-thirds of directors (66 percent) made changes during the last 12 months as a result of their full-board or committee self-evaluations.
• Continuing director education. Over half of directors (52 percent) believe some form of annual board education should be required. Of those with this belief, over 40 percent had less than four hours of outside training last year, and 21 percent did none at all. Again, like fruits and vegetables, the need for education was more theory than practice for many.
• Time commitments increase. More than half of directors say the amount of time they spent on board work rose last year. Two-thirds of those increased their hours over 10 percent, and one-fifth more than 20 percent.