The title of PwC’s new 2024 Corporate Directors’ Survey, Uncertainty and transformation in the modern boardroom, might clue you in to one of its themes: uncertainty—anxiety?—arising out of the looming election. According to PwC, the “2024 election matters more than usual. Not only is the American electorate more polarized than anytime in modern history—making corporate leaders’ every statement and decision subject to public criticism—the results could rapidly reshape the business landscape. Which political party emerges victorious in November, in the White House and/or the houses of Congress, may prove enormously consequential for how every industry functions. The impacts could be dramatic.” We may see policy changes on “tariffs, sanctions, treaties and alliances” that might “upend international trade and disrupt supply chains.” We could see revised tax policy and enforcement priorities, transformed attitudes toward DEI and ESG programs, different views on antitrust enforcement, immigration and possibly, “most significant for many industries, the incentives that have fueled recent sustainability investments could grow further—or be diminished.” That makes “a board’s ability to be agile and stay current in the face of uncertainty” more important than ever. To assess the state of current boardrooms, PwC surveyed 500 public company directors, concluding that boards just might be evolving “too slowly to effectively meet the challenges facing companies today and tomorrow, irrespective of potential political disruptions.” PwC attempts to understand what is driving the results and recommends approaches to addressing the issues.
Summarized below are some of the report’s key findings:
- Director discontent with peers. Consistent with historical results, 49% of directors indicated an interest in replacing at least one director; what’s new this year is the desire of 25% of directors to replace two or more directors—a “high-water mark.” PwC tempers that data, however, with the observation that directors who are dissatisfied with the effectiveness of their board’s assessment—viewing it as more of a check-the-box exercise than a candid assessment—tended to be more dissatisfied with their peers. Why aren’t these directors removed? PwC reports that “directors cite collegiality and personal relationships, the awkwardness and time involved in replacing a director, and board leadership’s reluctance to engage in difficult conversations with underperforming directors” as some of the principal reasons. PwC advocates that directors “critically evaluate and consider whether their current practices are fit for purpose,” with the board chair or lead independent director “setting the tone, establishing intent and fostering a positive environment for constructive feedback,” including delivering feedback and holding directors accountable. PwC advises that the board develop an action plan, conduct individual assessments and engage third-party experts, with the Chair or LID setting the right tone at the top.
- Social and public policy issues. Ironically, while directors express concerns about a number of social and public policy issues—political divisiveness (75%), absence of cohesive immigration policy (59%), inequality of economic opportunity (44%)—57% of directors say that they have not discussed their companies’ positions on these issues with their boards in the past year. While boards may be reluctant, PwC suggests that stakeholders are pressuring companies, especially larger companies, to take stances, “with refusal to comment often as risky as boldness.” PwC advocates that boards make a proactive effort to discuss these topics during their meetings, adding them to the “board agenda, starting with a thorough understanding of management’s stances and their potential impact on the organization, the industry and broader stakeholders.” Has management performed impact analyses of how these issues could affect the company? What is management’s process for evaluating these issues? Does management understand and appropriately manage stakeholder expectations, particularly how they align with the company’s values and strategic goals? PwC also advises that boards “review and update their crisis management response playbooks to include scenarios involving social and political issues.”
- AI and generative AI. While 69% of directors surveyed have confidence in their management’s ability to execute the company’s AI strategy, only 50% believe that they receive adequate information about the company’s response to related risks. The top concern? Keeping up with the latest developments. The report indicates that oversight may be challenging, especially given most directors’ lack of expertise with AI. But education of the board may be particularly important given AI’s risks and opportunities, “competitive pressures, increasing regulatory scrutiny and ethical concerns around AI usage.” PwC advises that “it’s crucial for boards to establish a robust framework for AI governance that includes clear policies, regular updates and transparent risk management strategies.” More specifically, PwC recommends that boards establish a governance model with clear accountability, require more comprehensive reports from management on AI strategy, understand strategic opportunities, regularly review management’s framework for responsible AI use and keep up with the evolving regulatory landscape.
- Board composition. Interestingly, PwC found that, notwithstanding pressure from various stakeholders to add specialized expertise to the board, directors preferred to prioritize directors with core skills, such as financial (35%), industry (34%) and operational (23%), rather than specialized skills, such as AI/GenAI (10%), environmental/ sustainability (5%) and geopolitics (5%). PwC suggests that this preference may be a result of “an emphasis on long-term stewardship.” PwC advises that boards be proactive about board refreshment and succession planning, including developing standards for board composition, setting clear criteria for director tenure, creating board succession plans, and assessing current skills against long-term strategic needs. PwC suggests that boards address skill gaps “by adding expertise or external consultants, using board composition matrices to guide this process.” Finally, PwC recommends that, in developing plans for board composition, boards keep in mind a three-to-five-year time horizon.
- Board diversity. While the vast majority of directors appreciate the benefits to the board of diversity—unique perspectives (79%), improved culture (75%), enhanced board performance (68%)—a significant portion of directors (40%) were a bit skeptical as to whether board diversity led to enhanced company performance and only 35% saw a significant impact. PwC observes that female directors had greater appreciation for the benefits of diversity. PwC reminds us that diversity can include “gender, ethnicity and age, as well as diversity of thought. Having these different viewpoints in the room can bring unique perspectives, enhance decision-making and drive innovation.” PwC advises boards to incorporate diversity into board succession planning, champion inclusion, set clear diversity goals and monitor progress against these goals.
- ESG. PwC observes there seems to have been some pullback on ESG, with presence of ESG on the board agenda declining from 55% in 2022 to 47% in 2024. For 66% of those surveyed, the concept appears to mean different things to different people, and 58% said the concept of ESG was not well understood by the board. According to PwC, some elements are more accepted than others. For example, PwC found that cybersecurity and talent management likely did not meet the same resistance as climate change, which has become politically polarizing. PwC observes that “[d]espite the real risks and potentially significant opportunities that ESG presents, only 22% of directors believe it has a direct impact on the company bottom line.” Note, however, that directors on larger boards were more likely to see the financial impact than those at smaller companies (32% compared to 15%). PwC contends that boards need to see sustainability as part of strategy and risk oversight, identifying those topics that “have a direct impact on near-term performance or capital allocation decisions and which require monitoring without necessitating direct input.” According to PwC, directors should understand integration of sustainability risks and opportunities into long-term strategy and how progress is monitored, confirm that sustainability messaging and activities align with discussions on risks and opportunities, review consistency of messaging, understand the risk assessment and allocation of risk oversight, understand the process for disclosure compliance and monitor peer/industry trends.
- Shareholder activism. In the survey, 71% of directors responded that their boards have taken action related to shareholder activism in the past year, an increase from 65% in 2019, including actions such as engaging a third party to advise on potential activism (30%), revising executive compensation structures (26%), and using stock-monitoring services to track ownership changes (24%). PwC observes that directors are becoming more proactive, attempting to identify, and induce management to preemptively address, potential issues. PwC advises directors to be aware of the top shareholders and how the board will be informed of material changes in the shareholder base. In addition, directors should identify common triggers for activist engagement, understand, with help from experts, how the company is perceived, and develop a plan for engagement with activists, should that become necessary.
- Corporate culture. PwC found that, to assess corporate culture, directors are increasingly relying on quantitative measures, such as employee turnover statistics (76%) and employee engagement surveys (75%), and less on intuition and gut feelings from management discussions (59%, down from 64% in 2019). Interestingly, male directors were more likely (61%) to rely on intuition than female directors (53%). PwC attributes the shift to “several high-profile corporate failures attributed to cultural issues.” PwC advises that, while intuition can be helpful, it’s not sufficient: “[r]obust data and metrics provide deeper insights and more objective assessments of the company’s culture, helping boards to identify and address any underlying issues effectively.” PwC recommends that, in light of the “importance of culture in executing strategy,” the full board should oversee corporate culture, with the topic placed on the agenda at least annually. Culture, PwC maintains, should be aligned with “purpose and strategy.” Is culture “driving the strategy, promoting the right behaviors and encouraging employees to take appropriate risks”? Data and metrics can be used to “capture information about cultural shifts.” Boards can help set the tone at the top, “creating accountability and sending signals to employees at all levels. Directors need to be aware of their influence and understand how their decisions and actions align with company strategy.”
