Straight from the CEO: Trends Affecting Board Strategy & Composition

PwC ceo survey on board composition

Now in its 20th year, PwC’s Global CEO Survey collects insights from nearly 1,400 leaders at the world’s top corporations. In their special U.S. report, PwC isolated the survey responses from U.S. CEOs to explore trends within America’s corporate landscape.

In this post, we connect the dots between (1) the risks & opportunities identified by U.S. CEOs, (2) the concerns of institutional investors, and (3) the actions that boards can take. Let’s explore the following three trends:

TREND: Technology Promises to Shift the Competitive Landscape

It’s no surprise that 53% of U.S. CEOs expect that technology will have a “significant impact” on their competition in the years ahead. Specifically, what are they concerned about?

Cyber threats were identified as an area of “extreme concern” by half of the U.S. CEOs surveyed (up from 44% the previous year). The speed of technological change was another area of concern as CEOs calculate the time, money, and resources companies must expend to update manufacturing processes, IT systems, sales and marketing frameworks, etc. Then, there’s the cost of not updating these technologies fast enough.

U.S. CEOs See Competitive Threats Rising

CEO technology trends

It seems that CEOs aren’t the only ones losing sleep. Major institutional investors express concern over the mis-match of skill sets on today’s boards and the slow pace at which boards are replacing underperforming directors. Over the next few years, technology-triggered changes across the business landscape will require corporate boards to consider a new generation of board members in order to ensure proper oversight of cyber risk or emerging consumer segments.

[Consider], for example, a consumer-products company. You don’t market like you used to, even five or ten years ago. With social media and everything that’s going on, you really need someone that has current expertise in that business—[someone] that can see it from a different perspective.

Inside America’s Boardroom’s host TK Kerstetter cautions that seeking out a single-skilled board member—one that knows IT but doesn’t possess a broader range of contributory skill sets—may be a disappointment over time: “Yes, a board can benefit from someone who has business experience with IT, cyber risk, and/or social media, but using a board seat for single-skilled directors has not worked well for many companies.”

At the same time, boards must be prepared to onboard younger, less-seasoned directors by giving them the proper risk oversight training and introduction to the boardroom. Otherwise, no new faces—and no diverse skill sets—would ever make it to the board table.

Boards should begin by mapping out the skill sets needed on the road ahead using a gap analysis or similar methods. The board succession plan should be designed to fill those gaps and be revisited frequently.

Further Resource: Why Board Composition Will Be the Number One Issue for 2017

TREND: Scarcity of Critical Skill Sets Will Shift Focus to Talent Development & Retention

Data science and analytics skill sets will be in high demand over the next several years. As shown in the graphic below, analytics-enabled jobs will be a primary skill set across all industries, followed by data engineering jobs. With a limited talent pool to draw from, U.S. CEOs are already recognizing the need to retain their most valuable employees and develop these skills internally.

Area of Hyper Growth: Job Market for Data Science & Analytics

CEO trends talent development

Overseeing talent development (along with company culture) is increasingly becoming a critical area of board oversight. A stellar corporate strategy does little good to companies or investors without the workforce talent necessary to execute.

With the skills gap inevitable, major institutional investors have called on companies to “improve their capacity for internal training and education.” In the interest of both long-term economic prosperity and social good, investors are urging companies to fulfill their responsibility to their employees through talent development.

In our episode with Alan Guarino, a board member for Chefs’ Warehouse (and also the Vice Chairman of Korn Ferry’s CEO & Board Services), we shed light on the types of insights that a talent development expert can contribute to the board of directors. In his episode, Guarino outlines the critical factors that today’s boards should consider when it comes to talent development; he also explains how innovative companies are elevating the chief human resources officer and allowing HR to function more like an external talent agency.

Further Resource: What is the Board’s Role in Overseeing Talent Development?

TREND: Globalization Heightens the Importance of ESG Factors

ESG considerations are on the rise, and it’s not a fad. Rather, it’s a fundamental shift in the corporate business model.

This survey question regarding corporate globalization highlights issues like climate change and wealth inequality, which will be receiving increased attention from investors and activists in the months ahead. Forty-six percent of CEOs indicated that globalization has “Not at all” helped with Closing the gap between rich and poor or Averting climate change and resource scarcity.

Percentage of U.S. CEOs Indicating the Extent to Which Globalization Has Helped

ESG factors

In his annual letter to S&P 500 companies, Larry Fink (CEO of BlackRock) outlined what he expects from management and boards:

Environmental, social, and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth: sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates. A global company needs to be local in every single one of its markets.

Major investors have made it very clear that ESG factors are impacting their investment decisions. Boards must ensure they’re taking proper steps to monitor ESG metrics, whether that’s arranging quarterly reports from the company’s VP of Sustainability or forming a special committee. Don’t miss our episode with Evan Harvey, Nasdaq’s Director of Corporate Responsibility, who outlines how boards can begin monitoring environmental, social and governance factors.

Further Resource: 3 Ways Boards Can Begin Monitoring Sustainability

Catch the Highlights: Investors Board Performance Review

BlackRock, Vanguard, Trian Partners, and PwC

We hosted four sessions of our Investors Board Performance Review, where major investors, proxy advisors, and activists gathered to express their feedback on board performance.

What are boards doing well? Where can they improve? What expectations do they have for shareholder engagement?

Watch Highlights