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The Corporate Director Podcast
C-suite views on board performance
00:28:26
In this episode of the Corporate Director podcast, Dottie Schindlinger is joined by Arielle Berlin, who discusses findings from PwC's annual C-suite survey on board effectiveness. In this episode, Arielle dives into how C-suite members rate the board,...
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A
Foreign.
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B
Welcome to the Corporate Director Podcast where we discuss the experiences and ideas behind what's working in corporate board governance in our digital tech fueled world. Here you'll discover new insights from corporate leaders and governance researchers with compelling stories about corporate governance strategy, board culture, risk management, digital transformation and more.
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C
Hi everybody and welcome back to the Corporate Director Podcast, the voice of modern governance. My name is Dottie Schindlinger, Executive director of the Diligent Institute. And I'm joined once again by my amazing co host, Megan Day, strategy leader here at Diligent. Megan, how are you today?
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D
Oh, Dottie, you know, I'm feeling a little banny right now.
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C
A little banni. Oh, you have to say more about this.
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D
B A N I Can you guess?
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C
Okay, I literally can't. What are you talking about?
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D
Well, I want to talk today about a fascinating and timely article from directors and boards called Navigating Banny An Action Plan for Boards. And this is meant to replace the old VUCA model, another fun acronym. So volatile, uncertain, complex, ambiguous. The authors of this piece are saying that it really no longer captures the challenges we face. Instead, we are in a banny world, brittle, anxious, nonlinear and incomprehensible.
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C
Oh wow. Okay. So yeah, that does pretty much encapsulate the zeitgeist of the moment, I would say.
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D
Well, let me break it down a little bit of the BA and I. So brittle systems that seem strong can collapse suddenly. Example around Silicon Valley bank decades of stability like seemingly undone in 48 hours. Anxious. Social media, digital communication that amplifies fear and uncertainty accelerates crisis. Nonlinear events don't follow predictable patterns anymore. Small triggers can cause massive ripple effects and incomprehensible. Which is my favorite. The complexity of today's world often defies traditional logic and planning. And the article talks about how boards have to adapt holistically, not just reactively. And it means that there's a new kind of leadership that might need to take place within boardrooms to address this. Dottie, what's your, what's your hot take here?
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C
I love this so much. I mean, first of all, hats off to the authors for coming up with a great new acronym. Don't we always love an acronym? That's you. That's how you can tell we are full on governance geeks. Is that we always love a good acronym. But honestly, it definitely tracks with what we are hearing from directors and C level executives. We've been doing a series of roundtable discussions with directors, with general counsels, with others, and what everybody is kind of saying is like there's sort of this feeling of what's next, just this ever pervasive feeling of the next shoe is going to drop and we don't know whether it's a shoe, a boot, a slipper, a flip flop. Like we have no idea what to expect and we don't know what it's going to mean and we have no way to plan for it. And there's nothing predictable that we can rely on to guide us in the future. And so it kind of, you know, we've talked about the importance of scenario planning and it becomes increasingly difficult to even do or maybe even be useful when you can't even predict the scenario, you know. And yeah, this is really interesting. So did they have a remedy?
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D
Well, you know, it talks a little bit about sort of embracing scenario planning just in a different way than we have before. And what that's one to account for this nonlinear world that we're living in. But part of that goes in hand in hand with their call to leadership, which is really about fostering resilience and a new kind of emotional intelligence that's necessary. And then I think probably most importantly, they're also talking about rethinking governance, that it's dynamic and adaptive. It's not just this static oversight function. And I know that's something that you and I have discussed at length and see that we are really in the midst of that change right now.
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C
Well, Megan, that is really an incredibly perfect segue to today's interview because I had the opportunity to sit down with Arielle Berlin, who's the director at PwC's Governance Insight Center. And she and I talked about that PwC survey. I know you and I have mentioned quite frequently on this show, the C Suite survey on board effectiveness, which is always one of our favorite reports and is a nice counterpoint to the other favorite report of the year, which is the annual Corporate Governance index that comes out from PwC. And what was so fascinating about that is how many CEOs really feel that they have a gap between what they are doing, what the board is doing. They're not getting the kind of support they need. They're not getting the kind of guidance and insight that they want. And we thought that was quite interesting. Directors also rated themselves a little bit more low than they normally would. So there's clearly something going on there and there definitely is something in the water, something in the air that is making it a lot harder for both executives and boards not only to be in lockstep with each other, but just to do their individual jobs and feel that they're getting the support they need. Why don't we take a listen to the interview and we'll come back and talk a little bit more about Bannie. Joining us on the Corporate Director podcast today is Arielle Berlin, director at PwC's Governance Insights Center. Arielle, thank you so much for joining us on the show.
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A
Thank you for having me. I'm excited to be here.
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C
All right, so I've just told everyone that you're a director. Let's start off by having you tell us a bit more about your career background and what you DO at the PwC Governance Insight Center. Sure.
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A
Well, I am, as you said, a director in the Governance Insights Center. I've been with PwC for over 11 years. My background is actually in corporate law. I joined the Governance Insights center this past January, but prior to that, I was in PwC's Office of the General Counsel, serving in a corporate secretary role for PwC's board of directors. And for those of your listeners that don't know, the Governance Insight center is a value add service for PwC's cloud clients and a trusted thought leader in the governance community. The group was formed to leverage the firm's broad reach into boardrooms of companies in every industry. And we provide content, educational sessions, thought leadership and peer exchanges for directors, and also events designed to help directors navigate what's going on in the boardroom and in the evolving business environment. So I'm really excited. I've really enjoyed my time so far in the group.
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C
Well, Arielle, today we're going to talk about one of the things that is honestly one of our favorite moments of the year. Every year, Megan and I always talk about it as the governance Geek Super Bowl. And that's when the PwC annual C suite survey on board effectiveness comes out. We love to talk about it. So before we get into the findings, let's just start by getting a little bit of background on the survey itself for those who are not quite as governance geeky as we are. So tell us a little bit about the background.
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A
Sure. So this is the fifth year that we've done this survey. Each year, we partner with the conference board to survey management's perception of board performance. This past year, we had 520 executives from US public companies participate in the survey, and that represented different senior executive roles, as well as about a dozen industries, mostly with companies that were a billion dollars or more in revenue. And in the survey, we received insights on topics such as board composition, board Refreshment, board expertise, roles and responsibilities, and top risks facing executives. And as you know, Dottie, we like to compare executive insights with what directors are saying. Our team also does an annual survey with corporate directors on board performance. And it's always interesting to compare and contrast the two.
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C
I love doing that. And so let's get into it because some of the findings are really, really interesting. I think the place I'd like to start is that only 35% of the C suites say that their board is doing a good or excellent job. And meanwhile, 93% of them are telling us they think at least one director on their board should be replaced. Boy, are they hard graders. And they're a lot harder graders than the board members themselves. So tell us how that compares to previous editions and to the corporate director survey.
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A
Sure. So you're right, only 35% of executives this year rated their boards as excellent or good. But actually this was a nice increase from last year. Last year, only 30% of executives rated excellent or good. So yes, tough graders, but we're on the rise. On that positive note, we also saw that executives trust in their boards have gained momentum in other areas. 88% of directors said this year that their boards, they trusted them to effectively engage with shareholders, and 70% said their boards could successfully guide their company through a crisis. And both of these numbers have gone up from last year. So we're seeing that executives trust in their boards has gone up. So that's the good news. But you're right, the number on board refreshment is a bit unsettling. 93% of executives said at least one director on their board should be replaced. And the truth is that that number has consistently risen every year. Last year the number was 92%. And to compare it with the directors, only 49% of directors think someone on their board should be replaced. So there's definitely a different perception there.
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C
And clearly the person that the executives want replaced is giving themselves a high grade. So I, I'm curious to ask a follow up question because you ment that the, the percentage of executives that say that they believe the board could successfully guide the organization through a crisis has gone up. Do you have any thoughts as to why that number's increasing? Is there something that's sort of happening that is giving them a bit more confidence?
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A
I think over time they've seen their boards effectively engaging with shareholders and they've been through Covid. I think that they trust their boards can handle what's going on, which, which I think is extremely Positive.
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C
That's great. So I want to also talk a little bit about how these grades that the executives are giving to the board vary depending on the title that the executive has. So I know that, you know, depending on whether the person is the CEO or the CFO or in a different role, they might give a different grade. So could you talk a little bit about those findings? And why do you think there's a disparity in how different executives rank the board?
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A
Sure. And I think that this is really interesting. When we go deeper into the survey, we did see that effectiveness ratings varied widely by executive functions, and CEOs and CFOs were the most positive. Actually, 72% of CFOs now rate their boards as excellent or good. But on the other hand, only 40% of CIOs actually weighted their board effectiveness as poor. I think one thing is on the CIO side, I think that there may be a real disparity in the knowledge gap that exists between board members and technology leaders. And I think that many CIOs may feel that their board lacks a deep understanding of areas like AI and cyber that they are speaking to in front of the board. So I think part of it is a language gap. And the other thing that I think may be at play is that CEOs and CFOs are the executives that spend the most time with their boards. Right. So they're in front of the boards more. They're consistently on the agenda. I think they have a very good sense of what the board's responsibilities are and the strategic lens at which boards are looking at things. Some of these other members of the C suite are not in front of the board as often, so they may not necessarily recognize the lens through which the board is evaluating things. So I think that there's room there. I think that there's room to bridge that gap.
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C
That's some really interesting insight and I think resonates for me, especially in terms of just the amount of FaceTime and whether or not you're being brought in at a strategic level to have conversations with the board, or whether you're brought in only when there's a crisis. I think that also may be part what's happening for some of those CIOs.
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Exactly, exactly.
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I think it was interesting, too. You had a question there about what did executives want in the boardroom? Like, what sorts of areas of expertise are they looking for? And they told us that they wanted to see more international expertise in the boardroom along with AI and sustainability. I'LL be honest, I found those, those findings a little bit surprising because we've done some similar research and when we ask that question, we sort of get back. We want industry expertise, we want strategy expertise, and we want a CEO background, which seems very traditional to me. So I'd love to know what you make of that disparity. I mean, obviously two very different reports. But of the skill sets, executives are looking to see more in the boardroom. Just what are your thoughts there? What's going on there?
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A
I actually think that the findings are really interesting. I think international, which has skyrocketed. It's almost as if the executives, because remember, these questions were actually fielded last fall, even before the election. And it's almost as if executives were able to anticipate some of the issues that we are now facing in terms of supply chain and trade wars and those types of things. Interestingly enough, I want to go back to the point you made. Directors often are looking for strategic oversight in terms of skills. So those findings are actually consistent with what we're seeing board members want. But I think if you think about it, executives are running the company. They are doing day to day management, so they're thinking about AI, supply chain, how they're going to get their business done day to day. Whereas directors are looking at things, you know, a broader view, a broader lens. So it would make sense to me that they'd be looking for strategic oversight and CEO background and the like.
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C
That makes a lot of sense. I also would love to have you kind of share with us what are some of the top issues that executives are saying are really top of mind for them and the things that they'd love to see their boards spend more time discussing what made that list.
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A
So interestingly enough, when we asked executives what risks are keeping them up at night, talent management, supply chain and AI were their top risks. And they want more time spent in the boardroom on AI and talent. So what's keeping them up at night is also what they want the board to spend more time discussing.
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C
Yeah, that makes a lot of sense. I do also want to dive into one of the other findings that I thought was really interesting because, you know, we spend a lot of time, just like you, serving board members, serving executives. And when we ask them what do they want from the board, they often tell us they want more expertise, more support, more guidance. But then in your survey, the number of executives who said the board was overstepping has doubled. So from 16 to 32%. So what do you make of that? Are they just not offering the right kind of support. What are they doing?
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A
I think it actually makes a lot of sense. I think that executives need more support from their board. They're grappling with so much change with so many emerging risks. They do want more from their boards, and I think they're asking more of their boards. But at the same time, as boards are also trying to wrap their hands around all of these new and emerging risks, they are naturally asking more questions. That's their job. They are probing deeper. They may be getting a little bit more into the weeds as they themselves try to upskill and educate themselves. So it may seem to executives that they are, quote, unquote, overstepping when really maybe board members are just trying to get their hands around a lot of these new issues.
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C
I think that's some really good perspective. Those were some of the top highlights that jumped out to me. But is there anything else in the report that jumped out to you? Anything you found particularly noteworthy that we didn't talk about yet?
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A
So I think it's really interesting that talent was featured so much in executives responses. Actually, 38% of executives think talent should be a priority for their boards. Last year, that number was 12%. Talent was, as we said before, one of the top three risks, keeping executives up at night. I think this is so interesting because usually talent doesn't really make its way so much onto the board agenda. So I think it's an interesting finding. I think it'll be interesting to see what it is next year. Maybe talent has really become part and parcel with strategies of a company, and maybe culture and talent and people are now going to make their way more into the boardroom. So I was really surprised by that, and I think it's very interesting.
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C
I think that is really surprising. And do you have any thoughts about, you know, kind of what's the talent gap that the executives are saying? I mean, does it have to do with AI? Does it have to do with international expertise? Like, what's going on there?
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This is totally my, my own opinion. I don't actually know, but I think it relates to AI. I think it relates to AI and just where, you know, the workforce is going and how, how to balance all these different strategic imperatives. If I had to guess, I think.
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C
I would agree with you. Yeah, a good guess. I think it's a good guess. So given the findings that you saw this year, do you have any kind of parting thoughts or advice that you would give to executives or to boards or both?
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A
Sure. I think that my Advice to executives would be to really help their boards and be their guide in terms of a lot of these topics that the executives want from their boards, whether that's through education by management and bringing in some of these C Suite members that we talked about earlier into their boardroom more often, doing more education. Maybe that's with an outside resource to really be the board's guide. I think that that would be very helpful and for boards, first of all, I think it's important to know what executives think. Knowledge is power. And I also think that boards can focus on upskilling themselves in areas of emerging risks. And these are areas we know that executives want their help on and that boards are really struggling to get their arms around. And I think that if, if each of each of the executives and the boards do these things, we can come to better alignment and bridge some of that gap.
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C
Just the last question I want to ask you on the report before we start to transition here. Where can people find it? What's the best place for us to go find the report?
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A
Sure, you can go to our website, the PwC's Governance Insight Center. It's on our main page under Feature Publications and the surveys called Board Effectiveness, A Survey of the C Suite. And you could also feel free to reach out to me directly for a copy as well.
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C
Fantastic. We will also make sure to put a link to it on the podcast page as well. So, Arielle, before we let you go, there are three questions that we like to ask all of our guests that join us on the show. So the first question is, what do you think will be the biggest difference between boardrooms today and 10 years from now?
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A
I think we're going to see a lot more AI and technology in the boardroom. Not sure if I should say this, but I wouldn't be surprised if there was a robot at the board table in 10 years.
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C
I am kind of with you. I'm wondering how many of our board members will still be human in 10 years.
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A
I don't know how that will look, but it's a possibility.
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C
Definitely is a possibility. And what was the last thing that you read or watched or listened to that made you think about governance in a new light?
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A
I was thinking about this question. Have you watched the show paradise on Hulu? Yes.
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D
Yes.
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A
So I don't want to give too much of it away for our listeners that haven't watched it. But it's a show about survival in a post crisis underground city. And I was thinking about how things can go really badly with the wrong Leadership and with too many secrets. And I'll just leave it at that.
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C
That's a really good call out. I loved that show. And you're right, lots of governance lessons in that show. So thanks for that. And finally, Ariel, what is your current passion project?
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A
So I am slowly learning to play pickleball. And I am doing this so that I will have an activity to do with my soon to be high school senior. I'm looking for something for us to do together. Maybe he'll want to spend some time with his mom.
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C
That's fantastic. Well, Arielle, thank you so much for joining us on the show. It's been great to speak to you today.
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A
Thanks so much for having me.
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C
We've been joined today by Arielle Berlin, director at PwC's Governance Insights Center. Ariel, thanks so much for joining the show.
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D
I have to chuckle a little bit, Dottie, because it's like directors are maybe overstepping their bounds, but at the same, on the other hand, CEOs are like, I'm not getting what I want.
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C
So they're.
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D
That disconnect is interesting. It just tells to me, it reiterates this idea of how hard everything is right now.
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C
It's true. But it is. What you've just said always kind of cracks me up, Megan, because isn't that what we all want? We want what we want when we want it. And then we want you to go away, leave me alone the rest of the time. Like, basically what everybody wants. I mean, you know, kind of hilarious, but. But honestly, you know, if I'm a director and I'm reading that report or I'm listening to this, I'm listening to you talk about Banny. You know, I think what I'm always of a mind to do is to figure out how can I take this and make this a practical insight I can bring back to the board? And I think that your point about changing how we approach scenario planning and maybe changing the conversations that we're having with our CEOs and other C suite leaders might be a good place to start. You know, maybe it's, let's have a chat about Banny. Maybe we grab that article and read it as a group. You know, directors and boards always has great, great fodder for conversation. And that's a good one. Maybe we have a talk about this and we say, what are the banning elements of our business? Where are the things that we might potentially go wrong? You know, it is interesting, right, because you think about how many industries were propped up on a certain set of assumptions around what government will fund and not fund here in the US and then Doge came along and really upended a whole lot of things. And so it's that kind of conversation. Are there undergirdings are their assumptions on which we are basing entire parts of our business that if they somehow changed or ended would. Would put us in real peril? That's probably a useful place to start some scenario planning.
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A
Right.
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C
Coming. And it's not really the. The Black Swan event. Right. I think we have to kind of maybe stop using that term. There aren't as many black swans anymore as there are gray rhinos. Those gray rhinos, we know they're likely. We know they're out there. We see them across the savannah. They haven't yet charged at us. But it's just a matter of time. And I feel like there's a lot of that today that would be a useful place for us to start scenario planning. What do you think, Megan? Is that what they recommended or did they say, no, that's a terrible idea?
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No, definitely. It is about making sure you're building that resilience muscle that you are thinking about how you can actually get to foresight. And that's something I think we have all recognized as being important to do, but really, really bringing that front and center into the boardroom.
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C
I also thought, just going back to the interview with Arielle for a moment, there were some things that she brought up that you and I haven't talked much about that I thought would be interesting to maybe mention a little bit of a left turn here. But I thought it was really interesting in the report that directors are looking more and more for international expertise on their boards. And that's not something that we've seen rank as highly in previous editions of this survey or any survey that we've done, because we've done surveys and studies throughout the years about boardroom composition and international expertise really hadn't ranked highly as something that boards were looking for. And yet this year it skyrocketed. Thoughts?
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D
Yeah, I am keeping in mind that this was surveyed prior to the election, but it does always come back to me when I hear the word international expertise. I think interconnectedness more than anything else, and I think that has been a massive theme across organizations over the last five years.
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C
I think interconnectedness, but also going back to your bani concept or the bani concept, you can't hang your hat on relying on things being the way they've been in the past. Like you cannot count on you know, allyships, staying strong, relationships between countries, staying strong policies, staying consistent. You know, just look at trade policy, for example, like, do we have tariffs? Don't we have tariffs? Is it Tuesday or Thursday? And you know, that makes it really complicated for businesses to figure out how to price things, how to, how to navigate things, where to have supply chains, opening new factories, not opening new factories. I mean, it makes it very difficult to plan in anything like the long term. You know, these projects are not things you can spin up overnight.
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A
Right.
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C
A lot of these projects take years of development. And you know, if you invest a whole lot of time and energy in something and then that policy dramatically shifts, you could really be left holding the bag. So I think having some international expertise so that you have a little bit better sense of what's happening on the ground in some of these markets can be really beneficial to boards right now. Even. Even in this time of uncertain US Trade policy. Maybe more so in this time of uncertain US Trade policy. It's kind of interesting to think about. You're right. I mean, that came in prior to the election, but is still, is still very interesting. Well, Megan, thanks for sharing the bani concept and we will definitely put a link to that article on the podcast page. Really fascinating concept. And that wraps up another episode of the Corporate Director Podcast, the Voice of Modern Governance. I'd like to say a few special thank yous, first and foremost to our PwC expert Arielle Berlin, podcast producers Kira Ciccarelli, Steve Clayton and Laura Klein, our sponsors for the show, PwC, KPMG, Wilson Sonsini and Meridian Compensation Partners, and most especially, thank you to Diligent. If you like our show, please be sure to give us a rating on your podcast player of choice. You can also listen to our episodes and see more from Diligent Institute by going to diligent.com resources. Thank you so much for listening.
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B
You've been listening to the Corporate Director Podcast to ensure that you never miss an episode, subscribe to the show in your favorite podcast player. If you'd like to learn more about corporate governance and tools to help directors do their job better, visit www.digent.com. thank you so much for listening. Until next time.