PwC C-Suite Survey: Boards Don’t Understand ESG Risks
Execs identify reluctance of directors to retire as the main impediment to board diversity
A new study by global professional services firm PwC examining the views of company senior executives into the performance of their boards of directors revealed that many execs feel that company boards lack expertise to address sustainability issues such as climate and diversity, and that boards would benefit from replacing some directors.
For the “Board Effectiveness: A survey of the C-suite” report, PwC surveyed over 550 senior executives including CEOs, CFOs, COOs, as well as chief legal, human resources, IT and marketing officers across a broad range of sectors and company sizes.
The survey found that while executives believe that their companies’ board directors firmly understand key strategic issues, most do not rate overall board performance highly, and feel that boards lack expertise in key areas such as ESG and cybersecurity. 83% of the executives reported that their boards understand their company’s strategy somewhat or very well, yet only 29% rate overall effectiveness of the board as good or excellent.
Executives’ views on their boards’ ESG performance were particularly poor. When asked how well boards understand company ESG risks, only 12% of executives responded “very well,” and over half responded either “not very well” or “not at all,” the lowest score for any category. ESG was also the lowest-scoring category for executives’ perception of board expertise (70% said “poor” or “fair”), while a large majority said that their boards do not spend enough time on key sustainability issues such as climate (73%), labor and human rights (67%) and diversity and inclusion (59%).
Interestingly, these findings generally align with another recent PwC survey of board directors, in which only 25% of directors rated their own understanding of key material ESG risks as very strong, and that ESG issues were increasingly making their way into boardroom discussions.
One of the most striking findings of the C-Suite survey is the executives’ views into the need for board refreshment. Nearly three quarters of respondents reported that more than one director on the board needed to be replaced, and over half said that long tenure of board members has led to diminished performance.
The executives also felt that their boards lacked diversity, with only 21% reporting that their boards have sufficient racial, ethnic or racial diversity, and only 29% saying that their boards have the right mix of skills and expertise. Executives identified a reluctance to retire on the part of long-serving directors as the top impediment to improved board diversity, with 60% citing this cause. The results contrasted sharply with the recent PwC board survey, in which directors identified a lack of qualified candidates as the key barrier to better diversity, while only 19% of executives reported this.
Commenting on the survey’s findings, Maria Moats, Governance Insights Center Leader at PwC US wrote in a blog post:
“The findings from this survey give directors a glimpse into the areas that executives feel require more attention—and their concerns have validity. Efforts aimed at advancing D&I and improving director expertise and board effectiveness may not yield immediate results. These are challenging topics and require tough, continued conversations. If executives and directors are willing to put in the time and effort to bridge their differences and align their thinking, they may ultimately have what they need to prepare the company to tackle future challenges.”
Click here to access the survey.