Good morning,
A potentially demoralizing statistic is making the rounds this week: Only 29% of company leaders rate their directors’ performance as “excellent” or “good,” the latest board effectiveness report by The Conference Board and PwC found.
But there are at least two major caveats to consider when deciding how you feel about the survey.
For one, CEOs were much more positive about their boards than CFOs, CHROs, and other top executives. (See our chart below.) That likely has to do with the more intimate relationship that chief executives have with their directors, which means they’re more familiar with the board’s intense work, says Paul Washington, head of the ESG center at The Conference Board. “CEOs are in executive sessions,” he says. “CEOs are having dinner with the board the night before a meeting, and having many more private conversations.”
Secondly, C-suite leaders have a great deal of confidence in their directors’ ability to handle traditional board concerns. Eighty-five percent of surveyed executives say their company’s board members have a “strong” understanding of corporate strategy, while 72% say the same of the board’s grasp of key business risks.
Still, the report, which reflects responses from 600 public company C-suite executives, lays bare obvious tensions between management and boards.
“The expectation management has of their boards is changing,” Washington contends. C-suite leaders are looking for “true strategic partners” as they face tough situations, including economic slowdowns, unprecedented supply chain disruptions, and the rise of generative A.I., he adds. Even at large companies, managers want boards who can act almost like startup advisors, offering specific advice in key areas.
Here’s where boards have room for improvement:
ESG: Only 26% of top executives say their boards have the right expertise. However, 65% think their boards understand the company’s ESG strategy.
Digital transformation: 50% say their boards understand the impact of digital transformation and emerging technologies.
Cybersecurity/data privacy: 50% feel their boards have a “strong understanding” of their company’s digital vulnerabilities.
Forceful oversight: Just 33% of leaders say their directors ask probing questions; only 21% believe the board spends sufficient time on their directorship duties.
While boards have work to do, management plays a role in closing these real or perceived performance gaps, Washington argues. “Management can help to make sure their board is fluid on topics like technology and its impact on the company’s business.” Companies can also involve chief officers other than the CEO in the board evaluation process.
From the board perspective, chairs can make sure meetings are structured to invite deep discussions and tough questions, says Washington. And when recruiting, boards should ask themselves whether candidates have not only the skills for the role but the right temperament for today’s boardroom culture. Are candidates intellectually curious? Open-minded? “Is this a person who’s coming ready to be in a constant state of learning and contribution,” he says, “Or are they coming to tell us everything they know?”
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
P.S.: Beginning today, the Modern Board newsletter will be published on Tuesdays. No more waiting for the end of the week for your fix of board news!
A Word of Advice
“My best advice for corporate leaders is to skip the Juneteenth merchandising efforts and zippy social media campaigns and focus on the gaps that exist in your sphere of influence. And please, show your work."
—Ellen McGirt, in Fortune last June, offering advice for companies celebrating Juneteenth.
On the Agenda
👓 “One of environmentalism’s great challenges is not scientific but literary,” writes Washington Post book critic Becca Rothfeld in her review of Fire Weather: True Stories From a Hotter World. She reports that author John Vaillant has met that challenge, “dragging abstractions into the spotlight” with his gripping, extra timely book.
🎧 Seth Doberman, global chief A.I. officer at IBM until September, joined the LRN Principled Podcast to explore how businesses ought to be thinking about generative A.I. and its risks and why it’s time to develop accountability systems around its use.
📖 Add your two pence! The U.K.’s Financial Reporting Council published its report on proposed corporate governance reforms and is seeking public input on possible changes to director pay practices, evaluations, board composition, and more. Read a summary here.
In Brief
- Toyota CEO Akio Toyoda resigned earlier this year after self-describing as an "old-fashioned person" when it comes to electric vehicles. He remained as chair. This week, shareholders are expected to vote against his reelection at the carmaker’s AGM.
- Alex Soros, son of billionaire George Soros and new head of the Open Society Foundations, was a quiet presence when he first joined that organization’s board, according to the Wall Street Journal. It didn’t hold him back.
- Carl Ichan won at Illumina. But did succession planning lose?
- Just passing through? A new study from the University of British Columbia reveals just how much today’s new hires value mobility. Recruitment messages that underscore a company’s support of workers who want to pick up skills and move on are more successful than promises of long-term benefits.
- Facing inflation and market uncertainty, many consumers have put their grand home renovation plans on hold. Fortune’s Phil Wahba spoke to Home Depot CEO Ted Decker about his blueprints for growth, given softening demand.
- As we wait for the Supreme Court decision on affirmative action, Fortune’s Ellen McGirt looks at the strategy’s imperfect past, complicated present, and what could come next in an exceptionally thoughtful and deeply reported story.
The Long Read
Stewart Butterfield became a familiar face in the business pages soon after he cofounded and built Slack, transforming how we work, and long before he sold it to Salesforce over two years ago. Now Fortune’s Emma Hinchliffe introduces readers to Butterfield’s successor, Lidiane Jones, the Salesforce executive left to “patch up” the rocky relationship between Slack and its parent company. Culturally speaking, the two brands are on different planets; Hinchliffe’s profile of the Brazilian-born Jones makes clear why Butterfield told Slack staffers that she is “one of us” before his departure.
This is the web version of The Modern Board, a newsletter focusing on mastering the new rules of corporate leadership. Sign up to get it delivered free to your inbox.
