Corporate Directors Increasing Their Focus on Executive Compensation, Risk Management and Succession Planning

PwC Survey Shows Boards Embracing Change in Evolving Governance Environment

Oct 12, 2011, 15:34 ET from PwC

NEW YORK, Oct. 12, 2011 /PRNewswire/ -- Investor demands and regulatory pressure for improved corporate disclosure have dramatically affected directors' oversight roles and their focus on critical areas such as executive compensation, risk management and succession planning, according to the 2011 Annual Corporate Director Survey issued today by PwC US.

(Logo: http://photos.prnewswire.com/prnh/20100917/NY66894LOGO)

(Photo:  http://photos.prnewswire.com/prnh/20111013/NY86374A)

"Board members are serious about embracing change and are focused on identifying areas of risk and opportunity," said Don Keller, partner in PwC's Center for Board Governance.  "PwC's Annual Corporate Director Survey found that directors are willing to address and communicate about the concerns of key stakeholders."

In the summer of 2011, 834 corporate directors responded to the survey.  Sixty seven percent of survey respondents were on the boards of companies with more than $1 billion in annual revenue, representing the current boardroom thinking of today's world-class companies. Their responses indicate a clear recognition of the challenges they face with this altered landscape. Directors are listening carefully, and are focused on responding, to the concerns expressed by shareholders, regulators, and other stakeholders.

Executive compensation: boards consider say-on-pay

Directors expressed concern about shareholders' views of executive compensation levels, even in the face of a majority vote from shareholders in favor of current compensation.  The 2011 proxy season marked the first in which shareholders were entitled to such a vote, or "say-on-pay," and 72 percent responded that they would reconsider executive compensation, even though fewer than 50 percent of shareholders voted against the compensation levels.

Proxy advisory firms recommended "against" votes for approximately 250 companies in 2011, and 38 companies ultimately failed say-on-pay votes.  This would suggest that the advice of proxy advisory firms may not be completely persuasive, even though it does have an impact on the level of negative votes.  In turn, their advice may still cause directors to reconsider executive compensation.  The importance of the proxy advisory firms' views is supported by the survey finding that 24 percent of board members have had increased board-level communications with proxy advisory firms over the last 12 months.

To prepare for the say-on-pay vote and to embrace investor concerns relative to executive compensation, two-thirds of the responding corporate directors made changes to their approach from prior years, with 45 percent using simpler language in their Compensation Discussion and Analysis (CD&A), and 31 percent adding an executive summary to the CD&A.  

Risk management: Emphasis continues to expand

With constant changes in risk, whether financial, environmental or IT security risks, only 19 percent of directors rate their board as very effective at monitoring plans to reduce corporate exposure to risk.  Directors also recognize the significant competitive advantages that can be gained through the use of emerging technologies, as well as the threats posed by increasingly sophisticated cyber attackers.

Securing company and customer data is increasingly complex, and as a result, nearly half of directors surveyed (46 percent) believe their board's ability to oversee strategic use of IT is less than effective, and 38 percent want to spend more time on IT.  A majority (53 percent) said finding IT expertise is difficult.

Hot Topics: Succession planning, diversity, board gadgets

  • Succession planning: With several high-profile CEO successions in 2011, directors would like to focus more of the board's time on planning for the future leadership of the company.  Fifty-nine percent look to spend more time and focus on succession planning, up from 50 percent in 2010. Thirty-six percent of directors surveyed were not satisfied with CEO succession planning.


 

  • Diversity: The increased emphasis on diversity, driven by globalization and an increase in purchasing power of women and minorities, has many boards assessing their composition. The directors polled indicated that racial and gender diversity are the most difficult to add.  Nearly two-thirds (65 percent) found it difficult to increase racial diversity on the board, and 55 percent found it difficult to add gender diversity.


 

  • Board gadgets: The use of mobile computing devices in the boardroom is becoming more widespread.  A large majority of respondents have (42 percent), or wish they had (38 percent), started using tablets or smart phones to receive their board materials.  Notably, board members who have served more than five years and whose boards do not use such devices are more likely to hope their boards don't start doing so.


 

Additional stats and data are available at: http://www.pwc.com/US/DirectorsSurvey

About the Survey Participants

PwC's 2011 Annual Corporate Director Survey collects the opinions of 834 directors serving on the boards of the top 2,000 publicly traded companies by revenue listed with the NYSE Euronext, the NYSE Amex and the NASDAQ OMX Group stock exchanges. Eighty four percent were independent board members and 16 percent were inside directors. The majority of this group (60 percent) had served on their board for more than six years, with 26 percent having served more than 10 years. More than two thirds (67 percent) of companies had annual revenues of more than $1 billion and 13 percent had revenues of more than $10 billion. This marks the tenth year for this annual survey, formerly titled What Directors Think.  

About PwC's Center for Board Governance

PwC's Center for Board Governance is a leading resource to enable directors to more effectively meet the challenges of their critical role. By promoting leading governance practices the Center promotes excellence in the boardroom and is dedicated to better enabling boards and audit committees to perform their important roles. To provide timely updates to board members, the Center publishes the Annual Corporate Director Survey, annual Current Development for Directors, quarterly To the Point, quarterly BoardroomDirect, and offers forums for directors to discuss current issues.

For more information, please visit http://www.pwc.com/US/CenterForBoardGovernance.

About the PwC Network

PwC firms help organizations and individuals create the value they're looking for.  We're a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services.  Tell us what matters to you and find out more by visiting us at www.pwc.com.

© 2011 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

SOURCE PwC



RELATED LINKS

http://www.pwc.com