Increasing Board visits to company sites, considering new approaches to evaluating risk and improving transparency on compensation, governance and sustainability. These were among the many insights offered by speakers at last week’s Corporate Board Member’s Boardroom Summit in New York.
The two-day session kicked off with a look at a “Board’s Eye View of Strategy & Risk.” Panelists counseled that risk needs to be considered as an equal counterpart to strategy. “Board members need to recognize that it’s not possible to solve all risks. The focus should be on two handfuls of risks and thinking about how risks look as a whole package.”
Risk mapping may not always be the best way to approach risk as it may result in a focus that is too broad and doesn’t allow specific issues to be investigated in depth. “A better approach can be focusing on how well the culture enables risks to be detected and how well the company responds to these risks.”
Out in the field
Board member Pamela Craig, advised boards to see their companies in action first-hand by making more site visits. As a former member of Walmart’s board, she said they were “constantly visiting stores.” The subject should be raised in the onboarding process with new members, letting them know how site visits enable them to discover all aspects of the business. Site visits also are gaining increased visibility as companies in Europe are discussing them in their disclosures.
Compensating and governing
On compensation, Kathryn Neel, Managing Director at Semler Brossy said that while the increasing use of tables and charts in proxies was improving transparency, “We have a way to go before we achieve plain English.” Companies generally need to do a better job of demonstrating how compensation plan designs support strategy and why certain metrics, such as EPS, are chosen. Performance highlights should link to strategy.
A panel from Blackrock, State Street and Vanguard focused on investor stewardship guidelines (ISG), calling it a “shift from foundational governance to governance aligned with strategy.” “Companies should be using the ISG framework to respond to issues such as board composition and its contribution to understanding the company’s strategy and business,” said Glenn Booraem from Vanguard.
Activist investor Peter May of Trian said that boards need to be refreshed sooner than 15-20 years to avoid perceptions of loss of independence, including by adopting term limits. Companies also should conduct independent evaluations of their boards and do more than paying “lip service” to ESG issues. “Consumers want to know where their products come from and how they impact the environment,” he said.
Panelists discussing sustainability said that 80 proposals have been made on climate change so far in 2018 and institutional investors increasingly are asking companies for carbon footprint information. “Green investing” is growing in importance with investors voting on beliefs, not only on financials, and firms like Invesco creating ESG-focused funds focused on real estate, mainly in Europe, at present. “ESG principles need to be part of a long-term strategy with oversight of these issues addressed at the proxy or charter level and S&P 500 companies should be publishing CSR reports every year.”