Survey shows directors strive to set strategy-driven agendas

Sep 01, 2009

While the past few years have necessitated boards of directors putting a majority of their time and effort into getting the regulatory requirements right, a new survey from PricewaterhouseCoopers (PwC) and the Clarkson Centre for Board Effectiveness (CCBE) in collaboration with the Institute of Corporate Directors (ICD) shows that now is the time for directors to put their focus back on to the business strategy and put their agendas into action.

"Over the past decade, boards of directors have experienced an unprecedented increase in external pressure and scrutiny from external stakeholders," says Mike Harris, leader of the PwC Canada Corporate Governance Practice. "High-profile corporate collapses in the early 2000s and the resulting expectation of improved governance and oversight have put the spotlight on boards in all sectors. Now, with companies having experienced significant challenges throughout the recent economic crisis, we expected the impact on boards to shift their focus back to the strategy of the business might have been considerable. However, our survey results show that no fundamental shifts have occurred calling for a renewed focus on the core areas of the business."

Tim Rowley, Director of the CCBE, Associate Professor of Strategic Management at the Rotman School of Management, University of Toronto, and the National Academic Director of the joint Institute of Corporate Directors/Rotman Directors Education Program agrees, "We have consistently seen great improvements to board effectiveness in recent years, but directors continue to face difficult challenges. External pressures are constantly changing, and directors must work harder than ever to keep abreast of new expectations."

According to the online survey of 429 Canadian directors, there is a disconnect between what directors feel is important to spend their time on versus what they actually do spend their time on. Currently directors spend the majority of their time in meetings on 'other business' (21.9%) followed by operations (21.3%) and then strategy (15.8%). Risk management was at a low 8%. However, when asked how directors want board meeting time to be allocated, 24.7% said strategy first, followed by other (20.3%) and operations (14.3%). Risk management moved up to 11.1%. Many boards are starting to develop new processes to better engage in agenda setting and board meeting oversight, but are not yet able to allocate meeting time based on their own agendas.

"As the only professional association representing directors and boards in Canada, it is important for the ICD to have a clear picture of the challenges facing directors today so that we can better support our members in being as effective as possible in the boardroom," says Beverly Topping, President and CEO of the ICD. "Although satisfaction gaps exist, the survey shows a dramatic increase in time spent on strategy over the last five years—an encouraging sign as directors continue to push strategy to the forefront of their agendas."

Brenda Eprile, leader of the PwC Canada Risk Services Practice further comments, "Actual time spent in the boardroom has increased dramatically in recent years and most likely, the changes in boardroom focus are a product of numerous factors resulting from a changing marketplace, scrutiny from stakeholders and an increased professionalization of the board's role. While directors have indicated a significant increase in time spent on strategy, risk management and compliance in recent years, they still feel that further adjustment is necessary in order to maximize the board's value. Ideally, directors want to spend more time on strategic planning and discussion and less time on operational oversight."

While boards' workloads have grown, the size of boards themselves has not. In all sectors, boards have indicated that in the past five years the number of directors has stayed static - partially a function of the feeling that their boards have the right number of directors, with only not-for-profit boards reporting slightly overpopulated boardrooms. However, turnover on boards is occurring. The average tenure of a director on a public board in Canada is under five years while a large majority of elections are annual.

As boards increase focus on fulfilling their responsibilities, the need for well-educated and experienced directors is increasing. The profile of an effective director is a fine balance of specialized skills and nuanced personal characteristics. Financial literacy (83%) and independent-mindedness (77.2%) are far and above the most sought after skills, representing the need for both technical expertise and high-quality communication skills.

Harris comments, "The implication here is not that all directors must be financial experts, but rather that financial expertise is an indispensible skill for the board as a whole. Combined with a strong understanding of the organization's strategy, these skills are key elements of today's ideal director. These characteristics are becoming more important as, in many cases, the interface between the board and management is becoming more sophisticated."

Indeed, 21.3% said that understanding the organizations strategy is most important, followed by acting in an ethical manner (17.5%) and makes valuable contributions to discussions (17%).

When it comes to their education, most boards are now encouraging directors to participate in a variety of opportunities. At many organizations, however, there are no formal requirements and for some others continuing education for directors is not yet on the radar. While a growing number of directors are taking initiative on their own accord, a majority of board members surveyed indicated that they have greatly increased their commitment to director education even in cases where their boards have not. At present 60.8% of directors surveyed said that the most common education they receive is reading materials, followed by 50.1% receiving site visits and 46.6% receiving presentations from industry experts.

Survey methodology

The survey, conducted in the spring of 2009, was developed by PwC and the CCBE in collaboration with the ICD. A total of 429 directors from diverse sectors and industries responded to a request to provide qualitative and quantitative feedback on their experiences as a director in a questionnaire. Others also provided comment in an interview format.