Earlier this year, accounting and finace giant PwC conducted two separate surveys to get perspective on key corporate governance issues from both public company directors and institutional investors. The surveys were designed to elucidate specific trends which we believe are shaping corporate governance and will likely impact boards in the future.
A total of 863 company directors responded to PwC’s 2014 Annual Corporate Directors Survey. More than 70% of these directors serve on the boards of companies with more than $1 billion in annual revenue. Seeral dozen institutional investors representing more than $11 trillion in aggregate assets under management responded to PwC’s 2014 Investor Survey.
This survey research project compares the responses of both groups to identify shared viewpoints as well as differences. PwC’s Investor Resource Institute hopes that “company directors, investors and managements teams will use this information to help close the expectations gap.”
Financial expertise most important attribute for director
The PwC report highlights that both directors and investors believe that financial expertise is the most important director attribute (93% of directors and 82% of investors say it’s “very important”). Much like last year, both groups also put industry and operational expertise at the top of their director attribute lists. Of note, investors prioritize risk management expertise more than directors (79% describe it as “very important” relatove to 65% of directors).
Replacing underperforming company directors
Somewhat surprisingly, 36% of directors replied they believe someone on their board should be replaced, a 5% move up from 31% two years ago. Directors also note diminished performance due to aging, lack of expertise and unpreparedness for meetings as the primary reasons for their dissatisfaction with the performance of their fellow board members. For investors, director independence, level of expertise and over-boarding are the three most important factors in their director voting decisions. In fact, 94% of investors reported they consider a director’s independence and 85% said they consider a director’s expertise and over-boarding.
Improving IT engagement
The PwC report also pointed out that real gaps exist between how engaged directors are with key aspects of IT and how engaged investors think they should be. A solid 81% of investors reported directors should be at least “moderately” focused on new business models enabled by IT, but only 49% of directors report that level of engagement. Moreover, 90% of investors believe directors should be “moderately” focused on privacy risk, but just 64% of directors note they are engaged at that level.
Developing a security breach crisis response plan
Finally, almost 75% of investors reported they believed it was important for directors to be preparing a crisis response plan in the event of a major security breach, but only half of directors say they have or are actively making such plans.