Good morning,
A potentially demoralizing statistic is making the rounds this week: Only 29% of company leaders rate their directors’ performance as “excellent” or “good," the latest board effectiveness report by The Conference Board and PwC found.
But there are at least two major caveats to consider when deciding how you feel about the survey.
For one, CEOs were much more positive about their boards than CFOs, CHROs, and other top executives. (See our chart below.) That likely has to do with the more intimate relationship that chief executives have with their directors, which means they’re more familiar with the board’s intense work, says Paul Washington, head of the ESG center at The Conference Board. “CEOs are in executive sessions,” he says. “CEOs are having dinner with the board the night before a meeting, and having many more private conversations.”
Secondly, C-suite leaders have a great deal of confidence in their directors’ ability to handle traditional board concerns. Eighty-five percent of surveyed executives say their company’s board members have a “strong” understanding of corporate strategy, while 72% say the same of the board’s grasp of key business risks.
Still, the report, which reflects responses from 600 public company C-suite executives, lays bare obvious tensions between management and boards.
“The expectation management has of their boards is changing,” Washington contends. C-suite leaders are looking for “true strategic partners” as they face tough situations, including economic slowdowns, unprecedented supply chain disruptions, and the rise of generative A.I., he adds. Even at large companies, managers want boards who can act almost like startup advisors, offering specific advice in key areas.
Here’s where boards have room for improvement:
ESG: Only 26% of top executives say their boards have the right expertise. However, 65% think their boards understand the company’s ESG strategy.
Digital transformation: 50% say their boards understand the impact of digital transformation and emerging technologies.
Cybersecurity/data privacy: 50% feel their boards have a “strong understanding” of their company’s digital vulnerabilities.
Forceful oversight: Just 33% of leaders say their directors ask probing questions; only 21% believe the board spends sufficient time on their directorship duties.
While boards have work to do, management plays a role in closing these real or perceived performance gaps, Washington argues. “Management can help to make sure their board is fluid on topics like technology and its impact on the company's business.” Companies can also involve chief officers other than the CEO in the board evaluation process.
From the board perspective, chairs can make sure meetings are structured to invite deep discussions and tough questions, says Washington. And when recruiting, boards should ask themselves whether candidates have not only the skills for the role but the right temperament for today’s boardroom culture. Are candidates intellectually curious? Open-minded? “Is this a person who's coming ready to be in a constant state of learning and contribution,” he says, “Or are they coming to tell us everything they know?”
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
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