Concerns about Corporate Culture and Diversity Grow
As the scope of board oversight becomes increasingly complex, public company directors are more engaged in overseeing topics ranging from corporate culture to cyber security, and are thinking more broadly about how diversity and social issues fit into their company’s strategy, the results of PwC’s Annual Corporate Directors Survey indicate.
The survey of 714 directors representing a cross-section of U.S. companies from over a dozen industries was conducted in the summer of 2018. Researchers pointed out that from charges of cheating to meet government targets, to sexual harassment, to defrauding customers, corporate culture problems have recently threatened the reputations of a number of high-profile companies. When asked to identify the factors that contribute to problems with corporate culture, the leading response of the directors surveyed was the tone set by the executive team (87%), followed by the tone set by middle management (79%), an excessive focus on boardroom results (74%), compensation plans that drive bad behavior or undesirable outcomes (67%), and a lack of communication or transparency from management (66%).
Although more than 80% of the directors polled said their company has taken some action to address culture concerns, just 17% said their company has revised its compensation plans. The most commonly cited approaches to tackling culture problems were enhancing employee training (60%) and improving whistleblower programs (42%). Moreover, just 21% of respondents said their company has reviewed and/or amended its crisis management plan for dealing with the risk of a reputational crisis arising from culture issues, and only 19% reported that they had implemented a culture or engagement component of the company’s strategic plan.
The directors were also asked in the survey how they evaluate their company’s culture. Almost two-thirds of respondents said they use their intuition or “gut feeling” from interacting with management (64%), and/or employee turnover statistics (63%).
In addition, the survey asked the directors whether they support incorporating social issues into their company’s strategy, and, if so, which issues should be emphasized. While 29% of respondents said they think shareholders are too focused on corporate social responsibility, significant percentages agreed that their company should take certain issues into account when forming company strategy, including health care availability and cost (36%), resource scarcity (31%), human rights (28%), and income inequality (15%).
The findings clearly showed that most directors value board diversity: 94% of respondents agreed that diversity brings unique perspectives to the boardroom, 84% said they think diversity enhances board performance, and 81% agreed that diversity improves relationships with investors. The results further indicated that most of the directors surveyed support initiatives to promote diversity and inclusion in the workplace, with 66% saying that public companies should be doing more to promote gender/racial diversity, and only 9% saying that companies should be doing less. However, 45% of respondents admitted that their company does a fair or poor job of developing diverse executive talent, and 39% reported that their company’s overall efforts to recruit a diverse workforce are only fair or poor.
In addition, the survey looked at how board members are dealing with the growing threat of cyber attacks. Nearly all respondents (95%) said that their board or company has taken steps to prepare for potential cyber security incidents. When asked to identify these measures, 67% of respondents said their board receives increased reporting on cyber security metrics, 57% said that the resources or budget dedicated to cyber security has increased, and 56% said that third-party advisors have been engaged.
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