January 17, 2019
January 17, 2019
In order to benefit from emerging technologies such as automation, robotics, cognitive computing, and artificial intelligence (AI), companies will be required to leverage a critical resource: data. Given that reality, it’s not surprising that big data ranks as a top disruptor for boards—a recent survey finds that a whopping 63 percent of directors around the world view it as the biggest technological disruptor.
To help the public understand how directors globally view business risks and governance issues, the Global Network of Director Institutes—an international network of 21 corporate director institutes, that includes founding member NACD—produced the 2018 Global Director Survey Report. The association represents 130,000 individual members globally and seeks to enhance director professionalism through research and education. This first-of-its-kind survey reflects the perspective of roughly 2,000 public and private company directors from Africa, the Middle East, the Americas, Asia-Pacific, and Europe. The results provide important insights into the challenges and priorities of board members around the world.
What social and economic issues are top of mind for this group of directors?
Boards across the globe are increasingly finding social issues on their radar. When asked which key social and economic challenges are facing their countries, participants’ responses largely coalesced around three issues: poverty and income inequality, taxation and government spending, and the cost of health care. That said, there were some regional differences in directors’ ranking of these issues. Survey participants from European companies are more concerned with the cost of health care than their American counterparts, who point to taxation and government spending as a key priority for their countries. For their part, Middle Eastern and African directors worry most about poverty and income inequality.
How do boards evaluate themselves?
Conventional wisdom holds that what gets measured gets managed. In an effort to enhance governance, assessing directors individually and the board collectively is critical to ensuring that the board’s composition aligns with the company’s long-term strategy. The survey found that the majority of respondents (80%) conduct evaluations. However, out of those who conduct evaluations, the highest percentage of directors (46%) said their boards evaluate performance via informal discussions. This is compared to 42 percent whose assessments are done using formalized discussions and processes. The Americas led the group in using formal evaluations (57%).
How do directors view the impact of ESG issues on their companies?
Despite investor calls for more robust oversight of environmental risks, these issues continue to be lower priorities for boards. When asked about the relevance of select risks to the strategy and operations of their organizations, nearly half (42%) of respondents said the depletion of fossil fuels was not at all relevant; 38 percent said the same about measuring carbon emissions and their carbon footprint. Climate change fared slightly better, with 30 percent of directors saying it was irrelevant to the company’s strategy and activities.
Issues involving personnel, however, ranked fairly high for directors: 72 percent believe ethical behavior is critical to company strategy and operations, compared with 65 percent for employee health and safety, and 57 percent for employee relations and engagement. Given the tight labor market in the United States, human-capital management is likely to become a more pressing issue on board agendas. In fact, employee engagement was slightly more important to American directors (62%) than their European counterparts (45%). This concern also underlines the growing focus on culture as an enabler of company strategy and success.
Culture can have wide-ranging repercussions for an organization—both beneficial and detrimental—and, therefore, the board should dedicate adequate time to oversight of organizational culture. As noted in the Report of the NACD Blue Commission on Culture as a Corporate Asset, “a healthy culture serves as a unifying force for the organization and reinforces the elements of the strategy and business model in a productive way,” while a “dysfunctional [one] has the potential to undermine the business model and create significant risk for the company.”
Are directors confident in their board’s ability to oversee technology?
Technology can either catapult an organization to unexpected success or so effectively disrupt its business model that the organization becomes virtually or actually insolvent. And directors believe that big data and AI are likely to disrupt their companies, with a majority (63%) selecting big data as the top potential disruptor, closely followed by AI (60%). The application of emerging technologies is likely to change the ways in which companies across industries do business; however, it also represents unpredictable risks. Even if their companies are not early adopters or first movers in their industries or sectors, directors should ensure their companies are well positioned to capitalize on the changes these technologies may usher in.
GNDI also recently issued guidance for boards across the globe to strengthen their oversight of increasingly complex and advanced use of data. These data governance guidelines can be adapted to meet the needs of individual boards.
Directors of any company type—regardless of its corporate domicile—are charged with creating long-term value for their companies. As the global business landscape continues to evolve, directors must ensure their board is keeping up with the skill sets and practices necessary for effective oversight. That said, understanding the answers to the above questions, and how those answers may vary from region to region, will be increasingly important as more companies extend their cross-border operations.
For more insight into how varying governance approaches may impact your company’s global operations, download the full 2018 Global Director Survey Report.