Another approach boards are taking to strengthen oversight is to broaden the purview of the three core committees — audit, compensation, and nominating and governance — to address oversight of talent and culture (including diversity, equity and inclusion (DEI)), environmental and social matters, and cybersecurity and digital trust.
Audit committees expand oversight of cybersecurity and other nonfinancial risks
The audit committee has emerged as the primary committee overseeing cybersecurity. The percentage of S&P 500 companies citing cybersecurity in their descriptions of the audit committee’s responsibilities in the proxy statement has nearly tripled since 2019, jumping from 25% then to 73% in 2022. This percentage may be poised to change even further in the near future. Under Securities and Exchange Commission (SEC) proposed rulemaking on cybersecurity, companies would need to disclose whether the entire board, specific members or a board committee is responsible for cybersecurity oversight.
Beyond cyber, more audit committees are overseeing other nonfinancial risks. Notably, the environment, ESG, sustainability and climate are topics now appearing in the descriptions of audit committee oversight responsibilities for 13% of S&P 500 companies.
Compensation committees embrace oversight of talent matters
Compensation committees are facing an exponential shift in their scope, reflecting a major committee change. Once focused primarily on compensation matters related to the CEO, C-suite, and equity incentive plans and succession planning, many compensation committees have expanded their oversight role. While some of the descriptions of human capital management oversight are high level, others specify that such matters include diversity, equity and inclusion; talent recruitment, development and retention; workplace environment and culture; health and wellness; pay equity; and employee engagement and external surveys.
While only 3% of S&P 500 companies included “human capital” in their compensation committee descriptions in the proxy statement in 2019, a third do so now. Even more, 41%, include diversity or DEI among the committee’s areas of oversight, 15% claim oversight of company culture, and 7% say they oversee employee engagement. These changes are significant and reflect the board’s oversight and focus on the broader talent agenda.