Risk & Compliance

Boards Sharpen Focus on Social Issues

Directors increasingly see matters such as resource scarcity, human rights, and income inequality as important components of strategy discussions.
David McCannOctober 17, 2018
Boards Sharpen Focus on Social Issues

While the population grows ever-more polarized around social issues, corporate boards of directors don’t necessarily need to consider them. Increasingly, though, they are doing so.

In fact, in just the past year such issues have gained far more visibility in boardrooms.

In a survey released Wednesday, PricewaterhouseCoopers asked 717 directors about the extent to which they think their company should take various social issues into account when forming company strategy.

With respect to health-care availability and cost, 36% answered “very much” — up eight percentage points from last year’s annual director survey by PwC.

A similar leap in prominence applied to the issue of resource scarcity, with 31% of survey participants strongly agreeing that companies should factor it into strategy. Last year, only 21% said so.

Human rights earned a “very much” response from 28% of the surveyed directors, a solid climb from 20% last year. Even income inequality is rising in prominence, with the proportion of directors deeming the topic very important rising from 8% in 2017 to 15% this year.

Whether these trends will continue to deepen likely will depend on how public sentiment around such social issues shifts going forward. So far, directors who strongly favor taking them into account during strategy formulation are in the minority.

“Many directors are still neutral or don’t think these issues should factor into strategy discussions,” PwC noted in its survey report, adding that nearly one-third (29%) of those surveyed say “shareholders pay too much attention to them.”

Boards are also taking a harder look at corporate culture, a likely response to such news items as the #MeToo movement and cases of companies defrauding clients.

Surveyed directors overwhelmingly (87%) agreed that corporate culture problems often start with the tone set by the executive team. But 79% of them said cultural issues are also growing out of the tone set by middle management, while 74% pointed the finger at an excessive focus on short-term results.

Some directors said their companies have enhanced employee training about culture issues, while others are improving their whistleblower programs, according to PwC’s survey report. “Still, only 17% say they have revised compensation plans, even though 67% say those plans can drive bad behavior when poorly designed.”

Another contradiction: While almost two-thirds (64%) of directors acknowledged that they gauge corporate culture by using intuition and “gut feeling” from interacting with company management, only half as many said that’s a useful approach.

Still another disconnect applies to the hot topic of board diversity. A vast majority (94%) said director diversity brings unique perspectives to the boardroom, and 84% said it enhances board performance. Yet more than half (52%) of those surveyed agreed that board-diversity efforts are driven by political correctness.

“Nearly half [of directors] think shareholders are too preoccupied with the topic. Some also hint that it’s just a ‘check-the-box’ exercise,” PwC wrote.