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.
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.