As boards grapple to fulfill a wide range of roles amid increased scrutiny, growing compliance demands and a challenging economic environment, Deloitte’s “Director 360: Changing Roles, New Challenges” takes a look at issues ranging from board effectiveness and functionality to the changing role of directors in a survey of 215 directors in 12 countries.
Many directors are concerned that increased regulatory and compliance obligations have distracted them from focusing on performance and growth
“Director 360 indicates that many directors are concerned that increased regulatory and compliance obligations in the wake of the global economic downturn have distracted them from focusing on performance and growth,” said Dan Konigsburg, Leader, Deloitte Global Center for Corporate Governance.
“That said, the economic downturn and market volatility appear to have forced directors to clarify their roles with respect to the role of management, and heightened directors’ focus on risk and liability. The good news is that boards expect to focus more on growth, performance, management succession, and mergers and acquisitions moving forward.”
While almost three quarters (73 per cent) of directors surveyed either agreed or strongly agreed that all board members made a valuable contribution to the boards they sit on, more than a quarter (27 per cent) were either indecisive or flat-out negative about the contributions of their colleagues. The responses may reflect the heightened pressure in the boardroom since the beginning of the recession, as indicated in one director’s response: “Boards cannot afford to carry passengers.”
More than half of the directors (59 per cent) responding to the study agreed that the level of liability imposed on directors was appropriate. Some directors suggested that a heightened director liability standard may, over time, make it harder to recruit talented directors in some countries. As one director said: “Increasing regulation and liability will force directors to reduce the number of boards they are on. This impacts the cross-fertilisation of ideas and best practice.”
Less than half (46 per cent) of directors surveyed said that their organisations had an effective CEO and senior management succession plan, while approximately one-third (31 per cent) indicated that they did not have an effective plan in place. There were wide regional variations in responses to this question, with the majority of directors in Austria and Mexico indicating they did not have an effective plan in place and directors in Australia, India, and Ireland voicing strong confidence about the effectiveness of their management succession plans.
Some directors indicated that while the succession planning process was efficient in identifying people, there was still work to be done in preparing people to take on new roles.
A significant majority of board members (83 per cent) either agreed or strongly agreed that the board had a clear understanding of the nature and potential impact of business risks, and 75 per cent either agreed or strongly agreed that their companies’ risk management frameworks and policies were effective in identifying and addressing strategic risk. Of those surveyed, directors in Australia, Germany, Japan, and Sweden appeared to have the most confidence in their risk frameworks.
About three quarters of directors (74 per cent) who responded to the survey said that their organisations’ remuneration policy provided an appropriate incentive structure to balance performance and long-term value. That said, many directors voiced frustration that they were no longer allowed to simply use their own judgment. In some markets, such as Japan and Sweden, boards felt low salaries negatively affected their ability to attract good managers.
More than half (60 per cent) of the directors surveyed agreed or strongly agreed that increasing diversity of directors was a focus of the board. Many boards are concerned with diversity, but the survey shows that the term has a wide range of meanings for directors. In countries such as Australia where regulators have introduced new rules aimed at increasing the representation of women on boards, diversity was largely seen as relating to gender. Moreover, many directors conceded that they were doing little about diversity, while others simply felt that it was not the board’s responsibility.
As part of the Director 360 initiative, 12 Deloitte member firms interviewed 215 chairmen and directors of listed companies in 12 countries around the world between September and December of 2010 on the topic of board effectiveness and the issues, challenges, and opportunities boards face. Interviews were conducted in Australia, Austria, France, Germany, India, Ireland, Japan, Mexico, South Africa, Sweden, the United Kingdom, and the United States.
There was no normalisation or weighting of country results despite differences in numbers of directors interviewed in different countries. The report incorporates quantitative and qualitative data based on the interviews.