By Anne Sherry, J.D.
The latest Corporate Directors Survey from PricewaterhouseCoopers finds that boards are significantly more receptive to ESG issues compared to their attitudes just a year ago. Although few directors favor mandatory ESG reporting or disclosure, the vast majority reported that their companies disclose some information voluntarily. Nearly every director said their board is doing something to improve diversity, but few companies have increased compensation or other benefits to attract diverse talent.
Diversity and inclusion. The survey identifies several ways in which directors have overall become more focused on ESG since 2020. For example, more than half of directors support tying executive compensation to diversity and inclusion goals, representing a 13 point increase from 39 percent in 2020. Whereas last year 71 percent of directors said that board diversity would happen naturally, only 33 percent believe that now.
Overall, directors have shifted their diversification efforts from gender towards racial and ethnic diversity (PwC observes that 28 percent of directors on S&P 500 boards are female, but only 5 percent are Black and 3 percent Latinx). While most directors agree that diversity brings unique perspectives, increases board and corporate performance, and improves relationships with shareholders, a small majority of directors also believe that diversity is driven by political correctness, and more than a quarter of directors said that it results in the nomination of unneeded or even unqualified candidates.
ESG reporting. The survey revealed a significant gap between the importance of ESG and companies’ preparedness: 64 percent of directors said that ESG is linked to their company strategy, but only 25 percent said their board understands ESG risks very well. Two-thirds of directors favor the current system of voluntarily reporting ESG information; only 18 percent believe mandatory reporting would be preferable. Again, however, there is a disconnect: 94 percent of directors said their companies offer some voluntary ESG disclosure, but only 28 percent said the board has a strong understanding of the company’s messaging on ESG and sustainability.
Board dynamics. Some of the directors’ responses suggested that boards are having trouble ensuring that directors are the right fit. Nearly half of directors, 47 percent, said that at least one current board member should be replaced, even though most directors did not have complaints about their peers’ performance as directors. Survey respondents overall praised the assessment process of their boards, while at the same time criticizing the process for being a “check the box” exercise and putting limits on directors’ ability to be frank.
PwC also polled directors on the effectiveness of virtual board meetings necessitated by the COVID-19 pandemic. A little more than half of the directors said that meetings became more efficient, but this was the only attribute that improved from the virtual setting. Many more directors thought meetings were less effective than thought they were more effective; director engagement and board culture also took a hit, according to most respondents.