According to this report by The Conference Board, in collaboration with Semler Brossy and ESGAUGE, the vast majority (73% in 2021) of companies in the S&P 500 are “now tying executive compensation to some form of ESG performance.” To be sure, some companies have long tied executive comp to particular […]
In a recent report, Board Composition: Diversity, Experience, and Effectiveness, The Conference Board explores the implications for board composition of current trends toward ESG expertise and board diversity, together with the continuing emphasis on ensuring the right mix of skills and experience. This expanding list of priorities has led to increased diversity disclosure as well as greater functional expertise, larger boards and enhanced needs for board education. But while there has been a significant increase in disclosure regarding board diversity, that increase “has not been matched by increases in racial/ethnic diversity.” One cautionary note from the report: as boards seek to recruit more directors with functional expertise, such as cybersecurity or climate, the proportion of board members with business strategy experience has declined. For example, among companies in the Russell 3000, the percentage of directors with experience in business strategy decreased by five percentage points in the last three years. According to the Executive Director of the ESG Center at The Conference Board, the “recent decline in board members with business strategy experience is worrisome. Directors without broad strategic experience risk hindering effective board discussions and will likely be less useful partners for management….Although boards may want to add functional experience…, directors can bring meaningful value only if they can make the connection between these functional areas and business strategy.”
If you think 2021 was a tough year for corporate political activity, 2022 may be even more challenging.
That’s according to a recent survey from The Conference Board of government relations executives and managers of political action committees. In the survey, 87% of respondents said they expect 2022 to be at least as challenging as 2021, and 42% anticipate that it may actually be worse. In the aftermath of the January 6, 2021 attack on the Capitol, many companies and CEOs spoke out, signed public statements and determined to pause or discontinue some or all political donations. The heated political climate also heightened sensitivity to any dissonance or conflict between those public statements or other publicly announced core company values and the company’s political contributions, further complicating the political environment for companies and executives. In the survey, respondents cited a number of factors that contributed to the difficult environment for corporate political activity in 2021: in particular, 77% cited the frequent emergence of new social and political issues on which companies faced pressure to take a stance. According to the Executive Director of The Conference Board ESG Center, “With the 2022 mid-term election year bringing sustained scrutiny, companies that engage in political activity need to make the affirmative case for why they do so….They should focus on engaging and educating both internal and external stakeholders on how their activities serve both corporate and societal purposes.”
The Conference Board has just released a new report, Corporate Board Practices in the Russell 3000, S&P 500, and S&P MidCap 400: 2021 Edition, a primary focus of which is board diversity. According to the press release, the study is the “most current and comprehensive review of board composition, director demographics, and governance practices at US public companies.” Key to the study is that more companies are now actually disclosing the racial and ethnic composition of their boards (based on self-reporting by directors): companies providing data are up from 24% of the S&P 500 in 2020 to 59% in 2021, and from 7.7% of the Russell 3000 in 2020 to 26.9% in 2021. With regard to progress in board diversity, the data shows that women have made significant advances—on the Russell 3000 this year, women represented about 38% of this year’s newly elected class of directors, bringing total representation of women on Russell 3000 boards to 24.4%, up from 21.9% in 2020. However, boards have significant catching up to do when it comes to racial and ethnic diversity. Based on self-reported data, “boards remain overwhelmingly white,” and, for 2021, the class of new directors was 78.3% white, with only 11.5% African-American, 6.5% Latinx/Hispanic and 3.1% Asian, Hawaiian or Pacific Islander.
How do companies tackle the assignment of conveying to their shareholders and other stakeholders how they approach sustainability—in a way that is accurate, clear and genuine and that does not sound like a confected facsimile of every other peer company? That sounds like a challenging task. To address that challenge, The Conference Board convened a working group of over 300 executives from more than 150 companies who met five times between July 2020 and May 2021 to share ideas about how companies can effectively “tell their sustainability stories.” The Board captured some of those ideas in this report.
Issues regarding political donations have been thrown into sharp relief recently in light of the stands taken by a number of companies to pause or discontinue some or all political donations in response to the shocking events of January 6. A number of companies announced that their corporate PACs had suspended—temporarily or permanently—their contributions to one or both political parties or to lawmakers who objected to certification of the presidential election. But how widely adopted was this approach? To find out, The Conference Board conducted a survey. It turns out that those announcements reflected only a slice of the actions taken by corporate PACs. What’s more, the survey indicated that corporate boards typically had little role in these decisions. Nevertheless, for some companies, boards may find that political spending associated with their companies is front and center this proxy season.
What has been the impact of the COVID-19 pandemic on companies’ sustainability efforts? On the one hand, as discussed in this article from the WSJ, C-suite occupants have been “trying to figure out what they’re willing to throw overboard as the economic storm spawned by the pandemic is swamping their ships. Businesses that were planning to help save the world are now simply saving themselves….History suggests this new [sustainability] paradigm is probably on the back burner.” Even BlackRock, which had previously announced that it was putting “sustainability at the center of [its] investment approach,” acknowledged in April, that “certain non-financial projects like sustainability reports had been ‘de-prioritized’ due to COVID-19. ‘We recognize that in the near-term companies may need to reallocate resources to address immediate priorities in these uncertain times.’ BlackRock’s report stated. BlackRock said it would ‘expect a return to companies focusing on material sustainability management and reporting in due course.’”
On the other hand, however, as this article from Financial Executives International observed, the COVID-19 pandemic has highlighted “the very issues that have been driving ESG concerns—managing resources, sustainability, community impact and employee well-being.” While it might have been “easy to assume the current crisis may permanently shift attention away from environmental, social and governance (ESG) concerns as management teams grapple with existential issues,” it turned out that “the very actions companies are taking will likely bring them closer to the multi-stakeholder, long-term value principles that lie at the heart of ESG.” How are companies viewing the effects?