May 13, 2021
May 13, 2021
March 11, 2021 marked the one-year anniversary of the COVID-19 pandemic. It also fell almost seven weeks into President Joseph R. Biden Jr.’s new administration. Reflecting on the past year’s rapid change and the new shifts recently set in motion by the presidential transition, NACD’s Advisory Councils met in April. Through the discussions of the attending Fortune 500 committee chairs in the audit, compensation, nominating and governance, risk oversight, and lead director groups, several key themes emerged as confronting boards in the recovery from the COVID-19 pandemic.
With the pandemic driving a rapid shift to remote work for many, immense emotional pressure on employees, and changes to business practices and how work gets done, boards are focused on how to understand, measure, and foster a cohesive corporate culture in this new world of work. Meanwhile, after decades of talk about a global talent war, the concept took on a whole new meaning when employees suddenly had opportunities to work from anywhere and for any company in the world on a scale not truly foreseen. Boards, now able to feel somewhat more optimistic about the financial prospects of their companies as vaccination rates increase across the United States, are turning their attention to the new human capital dynamics brought forth by the pandemic. Investors have also taken a keen interest, increasingly focused on how boards oversee human capital, and some boards have modified their committee charters to reflect this expanded mandate and focus. The coming year will see a great deal of innovation in how companies manage human capital, demanding more proactive engagement from boards.
The “Biden effect” was also a common theme across each of the meetings. As the American administration fills out, the emphasis on new disclosures, regulations, and enforcement on issues related to environmental, social, and governance (ESG) matters broadly, and climate change specifically, will only escalate. The administration-wide focus was not a surprise to directors, but the speed at which it is developing underscored for attendees the necessity of developing the internal controls and assurance processes needed to comply with future disclosure requirements. Moreover, investors are increasingly looking for linkages between ESG performance and executive compensation and want to understand how ESG considerations support the long-term strategy of a given business. The next 12 months will see a confluence of ESG data reporting around prevailing standards, an emphasis on the auditability of that ESG data, and the maturing of corporate narratives that help explain ESG strategies and oversight.
As one delegate noted, these days, “all things are political.” Employees have been driving the recent wave of business engagement on societal and political issues as they increasingly look to work for organizations whose values mirror their own. And in this environment in which silence is viewed as an active statement, corporations are finding it difficult to remain mere observers. Building on the recent focus on corporate purpose and values, boards are beginning to develop frameworks to guide corporate engagement on social and political issues. Nominating and governance committees have typically led the oversight.
The 2020 election prompted some boards to reengage management on this topic and the events of January 6 provided further impetus for those discussions. Yet boards and management still struggle to find their footing on what is an increasingly fraught and challenging path to navigate. Afterall, there are employees and customers on both sides of political and social issues. What was clear to all meeting attendees is that the issues and pressures will only intensify in the years to come.
Where many saw a role for business is in serving as a bridge to try to find common ground to help diffuse current political and ideological tensions. Directors continue to focus on the economic opportunity that successful business creates as a means to support a more stable, vibrant, and well-functioning society.
For years, pressures on boards have been growing for them to go deeper into their organizations to understand their business operations, workforces, and management teams in new ways. In turn, directors are increasingly rethinking their roles and bringing a new measure of flexibility to the boardroom. On issues ranging from human capital to cybersecurity to environmental and climate strategy, directors are working with management to be more engaged and to augment and bolster management’s expertise and capabilities. While the objective is to always return the board to a balanced state of oversight, there are instances—a pandemic or similar crisis, for example—where more robust and deeper engagement will be called for. And with this deeper engagement, a novel way for boards to accomplish their work develops.
Having met virtually for the past year, boards have new tools for getting work done. Different structures for board meetings and agendas are beginning to emerge that focus in-person meetings around strategic, forward-looking agenda items while the more traditional oversight and compliance duties are conducted using remote technology. But directors are cautious not to let technology simply add more time to their meetings. As one participant observed, “The worst possible outcome is that we conduct our in-person meetings as we did before and now simply add on additional committee work virtually since it is viewed as easier to connect that way. Boards need to challenge themselves to think about how they structure their time together. That is the challenge board leaders and nominating and governance committee chairs now face.”
Advisory Council meetings are held under a modified Chatham House Rule. Neither the identity nor the affiliation of the speaker(s), nor that of any other participant, are revealed without their approval. Watch the NACD BoardTalk blog and NACDonline.org over the next couple of weeks for the release of deeper dives into the discussions had at each individual meeting. Learn more about NACD’s Advisory Councils and how to participate here.
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