Deloitte's Director 360 Reveals the Key Issues on Boards' Agendas

Directors voice concern that increased regulatory scrutiny may be distracting directors from focusing on performance

Oct 18, 2011, 09:00 ET from Deloitte Touche Tohmatsu Limited

NEW YORK, Oct. 18, 2011 /PRNewswire/ -- As boards grapple to fulfill a wide range of roles amid increased scrutiny, growing compliance demands, and a challenging economic environment, Deloitte Touche Tohmatsu Limited's (DTTL) Director 360: Changing roles, new challenges takes a look at issues ranging from board effectiveness and functionality to the changing role of directors in a survey of  215 directors in 12 countries.

"Director 360 indicates that many directors are concerned that increased regulatory and compliance obligations in the wake of the global economic downturn have distracted them from focusing on performance and growth," observed Dan Konigsburg, Leader, Deloitte Global Center for Corporate Governance, DTTL. "That said, the economic downturn and market volatility appear to have forced directors to clarify their roles with respect to the role of management, and heightened directors' focus on risk and liability. The good news is that boards expect to focus more on growth, performance, management succession, and mergers and acquisitions moving forward."

Highlights from the survey include:

Contributing as a team – Is everyone playing his/her part?: While almost three quarters (73 percent) of directors surveyed either agreed or strongly agreed that all board members made a valuable contribution to the boards they sit on, more than a quarter (27 percent) were either indecisive or flat-out negative about the contributions of their colleagues. The responses may reflect the heightened pressure in the boardroom since the beginning of the recession, as indicated in one director's response: "Boards cannot afford to carry passengers."

Increased liability – A potentially negative factor in attracting talented directors?: More than half of the directors (59 percent) responding to the study agreed that the level of liability imposed on directors was appropriate. Some directors suggested that a heightened director liability standard may, over time, make it harder to recruit talented directors in some countries. As one director said, "Increasing regulation and liability will force directors to reduce the number of boards they are on. This impacts the cross-fertilization of ideas and best practice."

Management succession planning – Concerns about the strength of programs: Less than half (46 percent) of directors surveyed said that their organizations had an effective CEO and senior management succession plan, while approximately one-third (31 percent) indicated that they did not have an effective plan in place. There were wide regional variations in responses to this question, with the majority of directors in Austria and Mexico indicating they did not have an effective plan in place, and directors in Australia, India, and Ireland voicing strong confidence about the effectiveness of their management succession plans. Some directors indicated that while the succession planning process was efficient in identifying people, there was still work to be done in preparing people to take on new roles.

Risk oversight – A fairly comfortable spot for directors: A significant majority of board members (83 percent) either agreed or strongly agreed that the board had a clear understanding of the nature and potential impact of business risks, and 75 percent either agreed or strongly agreed that their companies' risk management frameworks and policies were effective in identifying and addressing strategic risk. Of those surveyed, directors in Australia, Germany, Japan, and Sweden appeared to have the most confidence in their risk frameworks.

Executive pay – No longer up to the board's judgment: About three quarters of directors (74 percent) who responded to the survey said that their organizations' remuneration policy provided an appropriate incentive structure to balance performance and long-term value. That said, many directors voiced frustration that they were no longer allowed to simply use their own judgment. In some markets, such as Japan and Sweden, boards felt low salaries negatively affected their ability to attract good managers.

Diversity – Is it the board's job?: More than half (60 percent) of the directors surveyed agreed or strongly agreed that increasing diversity of directors was a focus of the board. Many boards are concerned with diversity, but the survey shows that the term has a wide range of meanings for directors. In countries such as Australia where regulators have introduced new rules aimed at increasing the representation of women on boards, diversity was largely seen as relating to gender. Moreover, many directors conceded that they were doing little about diversity, while others simply felt that it was not the board's responsibility.

Director 360 Methodology

As part of the Director 360 initiative, 12 Deloitte member firms interviewed 215 chairmen and directors of listed companies in 12 countries around the world between September and December of 2010 on the topic of board effectiveness and the issues, challenges, and opportunities boards face. Interviews were conducted in Australia, Austria, France, Germany, India, Ireland, Japan, Mexico, South Africa, Sweden, the United Kingdom, and the United States.

There was no normalization or weighting of country results despite differences in numbers of directors interviewed in different countries. The report incorporates quantitative and qualitative data based on the interviews. The views and opinions expressed in this report do not necessarily reflect the view of Deloitte Touche Tohmatsu Limited or its member firms.

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