Non-executive directors report 2018
Practices and fees trends report
Overview
Boardroom conversations and agendas continue to change given the different kind of workforce and workplace we are faced with today. The world of business is different, as it is now enabled by previously unimaginable technologies, where for example large quantities of data are no longer analysed on a sample basis but in full. Meanwhile, cybersecurity, human rights and environmental issues are still recognised as the biggest future business risks. Changes in society driven by social media and mobile technologies have changed the world as we know it—we now operate in the digital age and boards need to adapt accordingly.
The future of the board will need to change to reflect increased business risks and we predicted in our previous edition that non-executives will become specialised professionals. Boards are under pressure to continually transform and have empathy for how society has changed. They will need the right expertise, experience and diversity to be effective in this rapidly-changing business environment. But what may be missing is that ‘digital/technology non-executive director’. Someone needs to create and drive a board that will be able to lead in the digital age.
Ethics of pay
On a global scale, debates among organisations, shareholders, institutional investors and governments are ongoing and a key discussion point concerns ethics of pay.
In the context of organisations, the King IV™ Report on Corporate Governance (King IV™) states that ethics refers to ethical values applied to decision making, conduct, and the relationship between the organisation, its stakeholders and broader society.
Environmental and social investing
Non-executive directors will not only need to assess whether the decisions made by executive directors are in the best interests of the shareholders, but also whether they are in the best interests of the environmental and social context and best practice corporate governance.
The question that non-executives should consider is whether it is prudent to incentivise executives to reach the company’s ESG (environmental, social and governance) targets, by either incorporating them into their balanced scorecards or adding them to performance conditions for variable pay.
The board agenda in 2018
In the September 2017 edition of its “Board discussions” series, PwC UK identifies numerous megatrends that are causing significant disruption to organisations.
Boards must endeavour to manage these disruptions in order to remain competitive and successful in this changing environment, which necessitates innovation, resilience and agility. The increase in cybersecurity breaches is also forcing boards to pay closer attention to their organisational structures and remain aware of potential internal security risks.
The purpose of an organisation is evolving beyond a pure profit-orientation towards a model that is more focused on the organisation’s role in creating value in society. The impact of stakeholders has also increased the focus on ESG (environmental, social and governance) issues and the socio-economic impact of pay.
Non-executive directors have an important contribution to make to the proper running of companies. By being independent, they bring a degree of objectivity to the board’s deliberations, and play a valuable role in monitoring executive management.
