There’s often no better source of information than a person who has stood in your shoes. So in that spirit, we’ve asked boardroom insider Betsy Atkins to offer advice on concerns submitted by readers. This quarter, she addresses issues related to ESG proxy proposals,D&O insurance, ERM, and onboarding new directors.
We seem to be hearing a lot about proxy proposals related to environmental and social concerns. Which of these types of proxy items do I, as a board member, need to be ready for?
There is a significant increase in environmental, social, and governance (ESG) proxy items. First, there’s a high probability that companies are going to need to report on sustainability efforts, as environmental groups are pushing hard for that. The UK Corporate Governance Code already encompasses sustainability in its corporate social responsibility (CSR) score, much in the same way ISS sets standards for corporate governance in the United States.
Moreover, the standard setters like CSR RepTrak system are now measuring a company’s ability to deliver on stakeholder expectations across three dimensions of CSR: “citizenship” (support of good causes, positive societal influence, and environmental responsibility), “governance” (openness and transparency, ethical behavior, and fair business practices), and “workplace” (fair employee rewards, employee well-being, and equal opportunities).
Therefore, it’s very likely that one of the next priority items to appear on many proxies will be proposals around this sustainability theme, so boards would be well advised to start looking into preparing a sustainability report on an annual basis. These reports are somewhat complicated because there are a variety of metrics and standards to select from. Because shareholders are increasingly valuing sustainability and some stakeholders will loudly pursue it, it is advisable to start doing some early homework here.–B
Do you feel it’s acceptable to have the in-house GC handle our board’s director and officer (D&O) insurance review or should we use an outside specialist?
I strongly recommend using an outside legal expert who focuses exclusively on director and officer insurance. One really valuable aspect of this is having an outside law firm look at the D&O insurance language to make sure there are no exclusions buried in the policy. Keep in mind, you generally only need your D&O policy when something seriously bad is happening, and that’s the wrong time to find out if the language has been written by the insurance provider in a way that excludes you from the coverage you thought you had.
Additionally, it is very valuable to have your outside expert look at specific topics where you as a director are especially vulnerable, such as Foreign Corrupt Practices Act/anti-bribery and cyber insurance coverage. It is also very wise to have a review of your indemnification to make sure it is up to the most recent Delaware standards and is as broad as possible to protect you. Having a dedicated outside professional who knows the ins and outs of these technical areas is a good investment for the board.–B
Do you have any advice on how to create a risk matrix for setting boardroom agenda priorities? Enterprise risk management(ERM) is something we hear a lot about, but our board struggles with how to get our arms around it.
Creating a matrix of the company’s biggest risks and getting alignment from management and the board on the top risks facing the company is a very healthy practice. Your question is an excellent one, since it takes ERM from an audit committee risk mitigation exercise to a front-and-center focus to pinpoint the biggest challenges the corporation faces on an annual basis. To identify the most crucial product, competitive market, and financial risks, the board must collaborate as a team to establish which business issues should be covered as specific agenda items during the major quarterly meetings. The outcome of the discussion would be a series of agenda topics that require management to go deep on the major risks and detail its plan to address each risk and mitigate it.
Going through such an exercise allows directors to delve into overall strategic risk so the board can look at it carefully on behalf of shareholders.–B
The best way to onboard new directors is something our board has grappled with for years in terms of figuring out how to bring new directors up to speed and get them ready for all that board service throws at them. Some of our directors say a mentoring period can be a useful practice, but that seems like such a big commitment. Do you have any experience with this, or can you offer advice from your board experiences about successful onboarding strategies?
Successful new director onboarding should set two-way engagement expectations. The board, typically with support from the GC and corporate secretary, should provide an orientation for new directors who come in early, perhaps a half or full day in advance of their first board meeting.
Ideally, a series of one-on-one meetings with a subset of the CEO’s direct reports will help a new director get a current frame of reference on the company as part of his or her onboarding. Spending time with the CFO, business unit presidents, or key functional leaders such as the head of product or sales, is also especially valuable. If the company is a manufacturer, having the chance to tour the factory with the vice president of manufacturing is beneficial; likewise, if the company is a retailer, organizing “field trips” to visit stores is especially valuable. For example, when I joined the Volvo board, I spent several hours touring the safety/crash labs, which offered insights I could not have gained otherwise.
Additionally, having a package of financial and industry analyst reports, along with one or two previous board packages, provides good context for new board members. As far as mentoring, I would recommend new directors try and spend some one-on-one time with their colleagues to get the “institutional memory” of current board members on the most important priorities, opportunities, and risks the company has dealt with and is likely to face going forward. And while audit committee service will likely not be something a new director is thrown into, some companies feel it is especially valuable for new directors to listen in or join the audit committee, as the issues on its agenda often provide a very holistic view of the corporation and current risks. –B
Have a boardroom question for Betsy? You can submit it by email to To submit a boardroom question for Betsy Atkins, email CBMEditorial@ChiefExecutive.net.