Risk Oversight Continues to Hold Court in Today’s Boardrooms

NEW YORK, February 25, 2015—With new forms of cyber threats emerging almost daily, it’s no surprise that daily risk oversight continues to be one of the biggest challenges facing today’s boards according to the 12th annual What Directors Think survey, a comprehensive report on boardroom trends released by NYSE Governance Services, a trusted source on governance, risk, ethics and compliance practices, and global, senior executive search firm Spencer Stuart.

The nationwide survey of close to 500 directors found that 55% percent don’t believe that a public company board can ever fully grasp the different aspects of risk in the current corporate environment, particularly emerging risks like cyber risk and social media risk. Overall, boards indicated they aren’t completely confident in their ability to manage cyber risks and only 35% of respondents said their board had discussed social media risk as an agenda item in the past year.

To keep pace with the changing corporate landscape, boards acknowledged the need to add directors with varying skill sets which may explain why 371 independent directors joined the boards of S&P 500 companies last year, the highest total in six years. Respondents ranked industry expertise as the most important attribute of a potential director followed by financial expertise, IT/cyber experience, gender diversity, and CEO experience. Other attributes that are climbing the list compared to previous surveys include legal/regulatory experience and racial diversity.

“The expectations placed on boards in terms of what they are asked to oversee is much greater today due to many factors, including an increasingly dynamic global economy, political uncertainty, disruption caused by new technologies, and an active M&A environment,” says Kevin M. Connelly, CEO, Spencer Stuart. “As a result, directors find themselves needing to be knowledgeable in areas they may or may not have had much past exposure to or experience in, such as cybersecurity.”

The survey asked directors to identify board actions that are critical to company performance. Regular evaluation of the CEO was rated “very important” by 96%, with review of short- and long-term strategic plans a close second at 91%. Other crucial issues directors identified include regular evaluation of the use of capital as well as frequently reviewing management’s assessment of organizational bench strength (both were rated “very important” by 83% of respondents), regular analysis of potential acquisitions (73% very important), periodically meeting with managers onsite (62% very important), and bringing innovative ideas to the boardroom (58% very important).

While nearly 90% of directors surveyed rated their board’s understanding of its investor base as excellent or good, communicating with shareholders has occupied more of the board’s time in recent years, spurred by issues related to increased disclosure, majority voting in director elections, and say on pay, among others. While almost two-thirds (62%) of the respondents noted that their board has clear protocols designed to outline to how to engage with investors, nearly 30% said no.

“Shareholder influence on governance matters has increased significantly over the past several years. The debate has shifted from whether boards should engage in dialogue with shareholders to how” says Erica Salmon Byrne, head of advisory services for NYSE Governance Services. “In order to communicate effectively, board members need to be acutely aware of the issues that garner shareholder interest and make their boards vulnerable to activism.”

“We are observing that shareholders desire more transparency into board composition — specifically who is in the boardroom and do they have the skills and perspective to bring independent oversight in making smart, strategic decisions for the company in critical areas including CEO succession, risk oversight and corporate strategy”, says Julie Hembrock Daum, Spencer Stuart North American Board Practice Leader. “Investors are also starting to become more vocal on director tenure when independence may become blurred based on the length of time a director has been on a board.”

The full article detailing these findings can be found in the First Quarter issue of Corporate Board Member magazine, available here: xxxx

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About NYSE Governance Services

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