Big issues dominated the boardrooms of America in 2018, with board composition, investor influence, ESG and #MeToo/culture management issues taking center stage.
TK Kerstetter, Corporate Board Member’s Editor-at-Large and the CEO of Boardroom Resources, says that the board’s role in establishing company culture was in the spotlight this year, thanks to the indiscretions of some very-high profile CEOs and organizations.
“I certainly think that the culture issue seemed to crop up and challenge everybody in the sense of, first of all, how do you measure culture, how does the board influence culture?” Kerstetter says. “This was previously considered a fairly soft topic, but it has turned into something that is, as we suspected, pretty important to the sustainability of a company. So, certainly, that’s one of the big things that has happened this year.”
The issue of board diversity was also in the spotlight in 2018, thanks to increased scrutiny from investors on board composition and the passing of a new California law requiring public companies to include at least on female director on the board.
“Board composition is an issue every year, but this year investors have really taken charge of making sure that boards that are ignorant of this, that either don’t have any women or have very poor representation of women on their boards,” Kerstetter says. “Investors like State Street and the New York City pension funds and others have either withheld or voted no on nominating committees. For those companies that were affected, that was a pretty big event in 2018, and a shot across the bow for everybody else that investors are learning how to use their power. So, this is going to result in either better communication, better disclosures and more appreciation for the shareholder point of view.”
Environmental, social and governance matters were also a front-burner issue this year, with directors wrapping their heads around ways to address investors concerns in ways that make sense for their businesses.
“ESG is made more complex by putting it all together, and I’ve heard a lot of investors talk about splitting up the ‘E’ and the ‘S’ and the ‘G’ and reporting each of those independently, but there is no mistake and that the sustainability, social and environmental—all of that is taking on a much more primary role,” Kerstetter says. “It’s not like we didn’t have shareholders and proposals in the past, but that they were very lightly supported and that’s not the case anymore. They are getting a lot of support, and when you look at PwC annual corporate board member survey, the directors haven’t completely bought on to this, so it’s going to make for an interesting 2019 as those things come to a head.”