Companies operating globally are facing disruption on nearly every front. Political divisions are deepening in democracies across the Western world as varying groups become increasingly disenchanted with the status quo. On a regulatory front, Europe is forging ahead and initiating stringent rules, particularly in the areas of privacy and technology. Companies are also bracing for a future with deadlier and less predictable environmental issues, which pose potentially significant risks to business operations, from employee safety to supply chain disruption. In light of these realities, it is more critical than ever for the board to have a proactive approach to accountable and adaptive governance.
To understand how directors globally view governance, the Global Network of Director Institutes produced the 2018 Global Director Survey Report. This first-of-its-kind survey reflects the perspective of roughly 2,000 public and private company directors from Africa, the Middle East, the Americas, Asia–Pacific, and Europe. The results provide important insights into the challenges and priorities of board members around the world.
What issues are top of mind for this group of directors?
Boards are increasingly finding social issues on their radar. When asked about key challenges, participants largely coalesced around three issues: poverty and income inequality, taxation and government spending, and the cost of health care. That said, there were some regional differences in directors’ ranking of these issues. Survey participants from European companies are more concerned with the cost of health care than their American counterparts, who point to taxation and government spending as a key priority. For their part, Middle Eastern and African directors worry most about poverty and income inequality.
How do boards evaluate themselves?
Conventional wisdom holds that what is not measured does not get done. In an effort to enhance governance, assessing directors individually and the board collectively is critical to ensuring that the board’s composition aligns with the company’s long-term strategy. The survey found that the majority of respondents (80%) conduct evaluations. However, out of those who conduct evaluations, the highest percentage of directors (46%) said their boards evaluate performance via informal discussions. This is compared to 42 percent whose assessments are done using formalized discussions and processes. The Americas led the group in using formal evaluations (57%).
How do directors view environmental, social, and governance issues?
Despite investor calls for more robust oversight of environmental risks, these issues continue to be lower priorities for boards. When asked about the relevance of select risks to the strategy and operations of their organizations, nearly half (42%) of respondents said the depletion of fossil fuels was not at all relevant; 38 percent said the same of measuring carbon emissions and their carbon footprint. Climate change fared slightly better with 30 percent of directors saying it was irrelevant to planning for the company.
Issues involving personnel, however, ranked fairly high for directors: 72 percent believe ethical behavior is critical to company strategy and operations, compared with 65 percent for employee health and safety, and 57 percent for employee relations and engagement. Given the tight labor market in the United States, human capital management is likely to become a more pressing issue on board agendas. In fact, employee engagement was slightly more important to American directors (62%) than their European counterparts (45%). This concern also underlines the growing focus on culture as an enabler of company strategy and success. Culture can have wide-ranging repercussions for an organization—both beneficial and detrimental—and, therefore, the board should dedicate adequate time to oversight of organizational culture. As noted in the Report of the NACD Blue Commission on Culture as a Corporate Asset, “a healthy culture serves as a unifying force for the organization and reinforces the elements of the strategy and business model in a productive way,” while a “dysfunctional [one] has the potential to undermine the business model and create significant risk for the company.”
Are directors confident in their board’s ability to oversee technology?
Technology can either catapult an organization to unexpected success or disrupt its business model to the point of insolvency. And directors believe big data and artificial intelligence (AI) are likely to disrupt their companies, with a majority (63%) selecting big data as the top potential disruptor, closely followed by AI (60%). The application of emerging technologies is likely to change the ways a variety of companies do business; however, it also represents unpredictable risks. Even if their companies are not early adopters or first movers in their industries or sectors, directors should ensure their companies are well positioned to capitalize on the changes these technologies may usher in.
Directors of any company type—regardless of domicile—are charged with strengthening the company’s long-term value creation. As the global business landscape continues to evolve, directors must ensure their board is keeping up with the skill sets and practices necessary for effective oversight. That said, understanding the answers to the above questions, and how they may vary from region to region, will be increasingly important as more companies extend their cross-border operations. For more insight into how varying governance approaches may impact your company’s global operations, download the full 2018 Global Director Survey Report.