3 minute read 2 Feb 2021
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Three steps investors want boards to take to strengthen their effectiveness

By Jamie Smith

EY Americas Center for Board Matters Investor Outreach and Corporate Governance Specialist

Trusted resource on corporate governance and institutional investor trends. Researcher and analyst. Lifelong learner. Mother and nature enthusiast.

Contributors
3 minute read 2 Feb 2021

Investors shared suggestions on how boards can strengthen their effectives.

In brief

  • Investors want boards to consider how refreshment could improve oversight of strategy and meet investor expectations for board diversity.
  • Boards can enhance their effectiveness by making diversity on multiple levels a priority.
  • It is important for boards to challenge how they are staying informed on fast-changing developments.

We asked investors what steps they want boards to take to strengthen their effectiveness, particularly in the current environment. Most of their suggestions align to the following steps.

Focus on board refreshment aligned to strategic oversight needs

Around 40% of investors expressed a desire for boards to have stronger discipline around turnover in the boardroom to better align board expertise with strategy and meet investor expectations for board diversity. Some want boards to consider mechanisms to increase refreshment (e.g., managing to an average tenure goal, adopting a retirement age or overboarding policies). Given the accelerating pace of change, investors said that the relevance of long-tenured directors’ skills and experience is increasingly less clear, and that burden of proof is on the board to show how it approaches ongoing director education. Investors also said that a robust self-assessment process should play a key role in refreshment considerations.

Diversify

Around a third of investors focused on the opportunity for boards to enhance their effectiveness by diversifying across numerous dimensions, specifically including race, ethnicity, gender, skills and experiences. Key themes of these conversations included the need for challenging groupthink, enabling more robust discussion, setting the tone at the top for the company’ s DEI goals, and having diverse perspectives and experiences in the boardroom to stress test ideas in a crisis and more effectively oversee strategy.

Challenge how reporting from management, use of external resources and director education can be improved

One other aspect that came up more than expected was the topic of how boards are staying informed and receiving ongoing education to meet evolving oversight demands and navigate a rapidly shifting risk landscape. A point we heard consistently is the opportunity for boards to access more external expertise to help management look forward and see how external trends and stakeholder expectations are changing over time. Interestingly, we are hearing more from boards themselves on this topic as well. Some investors emphasized that they want boards to demonstrate an independent, informed view on the key issues facing the company (specifically including ESG issues like climate risk). Some investors also encouraged boards to assess the effectiveness of management reporting to the board, including the frequency of that reporting, the sources of information (e.g., is the CHRO meeting with the board regarding human capital matters), the usefulness of the data and dashboards provided in enabling strategic oversight, and the robustness of the discussions.

Key board takeaways

  • Look inward and challenge whether the board has the right people, structure, processes and information to be effective as the business environment, stakeholder demands and company strategy continues to evolve.
  • Ensure all directors have access to ongoing education opportunities that include external sources, particularly around emerging issues.
  • Develop a structured and intentional approach to managing board turnover and refreshment.
  • As company sustainability practices and impact, strategic workforce issues and stakeholder commitments come under more scrutiny, consider how the board is governing social issues and upholding its commitments to stakeholders.

Summary

Given the pace of change, investors want boards to prioritize board refreshment, bringing diversity to the boardroom and challenging information sources and education opportunities.

About this article

By Jamie Smith

EY Americas Center for Board Matters Investor Outreach and Corporate Governance Specialist

Trusted resource on corporate governance and institutional investor trends. Researcher and analyst. Lifelong learner. Mother and nature enthusiast.

Contributors