C (3:47)

It's really interesting and because some of the commentary around this trend right now, so that, you know, white men are back, for lack of a better way of saying it, that, you know, they're, they're spe. They're seeking different types of leadership expertise and perhaps, you know, CEO experience is, is rising back up in terms of the type of experience that somebody wants versus, you know, we've seen a little bit of change in terms of specialization over the years and things like that, where there was an opportunity to pull from more diverse candidates versus just going back to that CEO pool, which, you know, historically, regardless of other shifts happening in the world, still is primarily met.

B (4:33)

I will say, though, you know, I always feel like it's important to have some perspective. And one of the perspectives here is I think The S&P 500 companies largely are US based companies. And so it's always important to remember, when you look globally, the picture changes pretty dramatically. And I would say, especially in the UK and the EU, where most of those countries now are under a 40% gender diversity mandate, where you have to have 40% of your board represented by women. And so there are many, many companies in the EU and in the UK who are kind of struggling to find candidates. And, you know, again, they're kind of going through the same machinations that companies in the US went through starting in 2020, where it was like, oh my gosh, we need to do more in this area. And we don't, we don't have those connections, we don't have those networks. We don't know how to find this talent. And that was when lots of organizations stepped into the breach and said, this is not a pipeline problem, this is a network problem. And here are thousands of incredible candidates that you need to get to know.

D (5:33)

And.

B (5:34)

And companies went, hooray, they are great candidates. Great, let's get them on these boards. I feel like that process is now really, has been happening the last couple of years in the EU and the UK and is really picking up steam. We're seeing lots of companies now really focused very much on meeting that 40% mark, and quite frankly, not always from within their own countries. And so there's an opportunity for, you know, American directors who are looking for board seats don't just stay within the U.S. like, there's lots of opportunity around the world, too. And for many of those companies, having a US Director is advantageous because then you have a perspective that maybe you lack. And given the complexity of US trade policy and geopolitics right now, having a director who can kind of say, yeah, this is what we're seeing on the ground could be really, really helpful. So, you know, again, there's always, there's always ways to spin this to not be quite so dire.

C (6:30)

I like that optimistic take and a realistic take. I think it's a great call out. And I think, again, this all just leads to what I think is our theme for today's episode, which is really around board effectiveness. How do you have the right people around the table to have the most meaningful and important conversations that drive the business forward? And it's hard to do, for sure.

B (6:51)

And Megan, as you know, this is one of our absolute favorite episodes every year on this podcast when we get to interview the team from the PwC Governance Insight center about their annual course Corporate Director Survey. And this year did not disappoint. So I, I could have talked to Katie hall and Ariel Smilowitz for like, an entire day. We got the interview off at like, the half hour mark, so it's going to be a bit of a long listen, but I promise you it's worth it. There was so much in this year's report that is so interesting and to your point, Megan, a lot of it really focused on board composition. There's a lot of conversation around why are directors so unhappy with their colleagues? So that's probably a pretty good segue to listen to the interview and then we can come back and talk a little bit about what we heard. Joining us on the Corporate Director podcast today are Katie hall and Ariel Smilowitz, directors at PwC's Governance Insights Center. Today is one of our absolute favorite episodes of the podcast each year because we get to dig into the findings of the annual PwC Corporate Director Survey. So, Ariel and Katie, welcome to the podcast.

D (8:01)

Thank you so much. Thanks, Dahri.

B (8:03)

So, before we get started and start to get into the nitty gritty, because there's a lot to unpack in this year's report, I want to start by having you each share a little bit about your. Your roles at PwC and sort of your history, specifically with this report. Ariel, do you mind if you go first?

D (8:17)

Absolutely. Hi, everyone. My name is Arielle Smailowicz. I'm very excited to be here today. I'm really looking forward to the discussion. And in terms of my role at PwC's Governance Insight Center, I'm particularly focused on a couple of different things, one of which is helping bring the investor perspective into the boardroom. The other is also helping nominating and governance committees think differently about the dynamics that make boards effective, because these committees are so integral to shaping how the board operates, and I love helping them navigate those choices with an eye towards governance best practices. Before I joined PwC, I spent a number of years at a large asset manager on their investment stewardship team. So I had the chance to engage with a number of different boards and management teams on these issues. And I think in the context of what we'll be talking about today, acds, the annual Corporate Director Survey, has a lot to unpack in terms of all of these different issues related to board dynamics. So there's no shortage of what we'll be discussing in terms of what is top of mind for the boardroom agenda.

B (9:25)

Thank you so much. And Katie, you're a returning champion. So let's fill our audience back in on a little bit of your history and your thoughts on the history of this report, too.

E (9:35)

Sure. I love that title and intro. Katie Hall. I am a director, the same group as Ariel, and my background in PDBC is I've grown up in the firm, grew up in our risk management side of the house, and spend a lot of time working with the full board when talking about risk and specific topics, but also the audit committee as well. And yes, so this is my third year with acds and it just continues to get more interesting with each year. And having Ariel's perspective this year has certainly made it even more exciting to come talk to you about.

B (10:15)

So.

E (10:15)

So we'll give you a little bit of history with some of the findings and give you some comparison and trending so that we'll show you sort of how things have improved or how we have more opportunity for improvement in some other areas.

B (10:30)

So, first of all, I have to say I'm thrilled to know there's an acronym, because for years all we've called it is the PwC survey. That's all we've ever talked about it. So, again, of course, you have way more than one survey. So it's very helpful to now call it the acds, the Annual Corporate Directors Survey for. For those who aren't as nerdy as I am and can't wait to get this in their hot little hands each year. Can I have one of you just share a little bit about the genesis of this report, sort of what's the purpose of it, how many people respond to it, tell us a little bit about the methodology and kind of what's behind. I'll leave that to the two of you to pick. Who wants to take that one?

D (11:03)

Sure.

E (11:03)

I'll give some of the history. And Ariel, you can talk about this year's demographics, if that works. So we've been doing this survey for. For probably close to 20 years at this point, and it started out with one set of questions, just trying to get a temperature check on what was happening in the boardroom and what was top of mind for directors. And as the years have passed, we ask certain new questions each year based on whatever the hot topic is. We want to get the sentiment around, whatever's top of mind for directors. But then there are questions that we ask every year, one of which I know we're going to talk about shortly, to give us that baseline and trending and almost like a, you know, a sentiment analysis, if you will. So that's the history. And Ariel, do you want to talk about some of the demographics for this year?

D (11:50)

Sure. And I should say, before I joined the team, I've been on the team for about a year. So my own historical background interacting with the survey is it used to help inform some of the engagement conversations that I had on the investor side. So I was very familiar with the survey and very excited to be able to work on it this year with Katie and the rest of the team. What we did a little bit differently this year was we added several new questions or tried to probe a little bit deeper into some of the existing questions that we had on different areas like board assessments, AI and generative AI, board culture, management relationships, shareholder engagement. So that was a little bit different this year. The other thing that we did differently this year was created a little bit more of a theme to try to organize the key findings and also developed, and we'll get into this later in the discussion. But a roadmap in terms of how do we make sense of these findings, what can an individual director do when reading through this report, and what kind of actions can they take if they're identifying that some of these issues are in the boardroom for them? What can the full board do? What can board leadership do? And what can executives, executive teams do as well? In terms of this year's report and the demographics, over 600 directors participated in the survey. So 600 directors across the United States. The respondents represented companies across a number of different industries, and 70% of those respondents are sitting on boards at companies that have annual revenues of more than 1 billion. So a wide range of respondents pretty, I think, significant representative share in terms of the pulse that we're getting from.

B (13:44)

Directors across the U.S. are they all public company directors? Public and private company directors.

D (13:51)

So this is focused primarily on public company directors, but I think some of those directors may also sit on private company boards. So I think it could be applicable across public and private.

B (14:03)

That makes perfect sense. Well, let's start with the eye popper, because, because, you know, this is, it's. So there's a, there's a question that's been on this survey for all the many years that I've been reading it, at least the last 10 that I can think of, which is, is there someone on your board that you think should be replaced? Right, I'm paraphrasing, but it's a question of that ilk. And that number has been trending up the entire time I've been reading this survey for the last decade. And this year we've, we've always said it's nearly half. This year it was 55%. So we are over half. More than half of the directors who responded to this say at least one board member should be replaced. That's the highest level we've ever seen. So what's going on here? Why is this number not going down? Why is it going up every year? Why are they not getting better at this? Is it the same person and they just can't get rid of the person? Like, what is going on here, Katie?

E (14:57)

Yeah, that's a, that's a great question. It's the million dollar question. And, and we do spend, to Ariel's point, we do spend a little bit more time this year trying to get into that number. And you know, some of the reasons why. But right. It's over 50. It's over 50 and 55% up from 49 last year. And there are many different reasons that directors have indicated to us. And then there's reasons that we think as well mean when we ask what's fueling that perception. What are some of the reasons why you think these directors are need to go? And it's the same sort of answers, but the number one was that they're not actively engaged. So 41% said that directors don't meaningful their. Their peers do not meaningfully contribute to a conversation. So to me, I think looking at everything that directors have to cover and oversee these days, the topics are endless and they're continuing to grow. If you can't cut it in the boardroom and you're not contributing to the conversation, time for you to go according to your peers. Other reasons are just outdated skill sets. Again, not keeping up with the times. Just because you don't have an expertise in a particular topic doesn't mean that you aren't responsible for upskilling yourself. Dominant personalities, that's always been one as well. When you think about the board culture and you have a few voices that are maybe more dominant in a conversation that can lead to a board culture that's, you know, not as positive as it could be. And directors thinking maybe that person who's the dominant voice needs to go. Other reasons, just looking here at the stats, reluctance to challenge management, which I thought was really interesting, which we might talk about later when it comes to what management's view is. But one of their primary responsibilities as the board is when to support management to also to effectively challenge them. And that's not happening as well. According to directors. I'm seeing that from their peers. So those are a few of the reasons why directors have told us that they think that there's that need for somebody to go in terms of why they haven't gone, why there's not more refreshment than there currently is right now in the US the number one reason really is it's hard to have awkward conversations. I think we're all humans and we all can relate to that. But directors have told us time and time again we have this collegiality conundrum. It's hard to have awkward conversations. So there's that and then we'll get into the assessment process as well. But I think there's some feelings around the assessment process not being effective. If you think of that as a major tool for pushing out underperformers if that's not working, then you've got a problem there. So something's got to change or we're going to be back here next year. Dottie saying the same exact thing.

B (17:49)

Yeah, I fear you're right. I mean, Ariel. So anything you want to add to the list that Katie just provided? And then I want to actually double click on the assessment process because there was a lot of interesting data there, too. So anything you want to add?

D (17:59)

Sure.

B (17:59)

Before we go there. Sure.

D (18:01)

So I think I'd add, you know, Katie mentioned that collegiality was the biggest reason that was cited in terms of why boards are reluctant to act. Another area that was cited was also wanting to wait until mandatory retirement age. And we've had quite a few different discussions with board members about the dynamics of some of these responses. And, you know, I think that. And we'll, we'll talk more about refreshment mechanisms later when we get to the roadmap, you know, for accountability. But, you know, I think it's kind of a challenge and a careful balancing act because refreshment mechanisms are, I think, a potential critical solution to help address this situation. On the other hand, sometimes it's not the solution and needing to have that difficult conversation and needing to kind of move beyond wanting to be collegial or having that be a hindrance or a barrier to doing what's best, you know, for the board from a fiduciary perspective, if a director is indeed underperforming is where, from what we're hearing, is really where boards are getting tripped up. And so I think, yeah, it's a very careful balancing act between the two. Refreshment mechanisms are a solution, but you don't want it to be the only solution.

B (19:19)

Well, let's, let's talk a little bit about the next finding, which I found really kind of reassuring and sort of surprising. This moment of, of self awareness on the part of directors. You know, often when you ask them questions about how they're doing, they're like, we're awesome. They usually kind of give themselves a really nice grade on a curve. Right. But this time, 88% of the directors said that they felt they could take at least one action to improve the board effectiveness. And among those responses, the top one was seeking additional education or training on key topics. So, Ariel, I see you nodding your head. What did you make of that finding? What are some of the things that stood out to you in terms of their realization about accountability?

D (19:59)

What I like about this finding is that it's positive, which is great. And I think it's an incredible thing that most directors are self aware and realize that accountability starts with themselves and that they can take personal steps to improve their overall board's effectiveness. So that is great. And I think there's a lot that boards can work with just from that alone. The way that we look at this finding and this resonates specifically with me is I, you know, I think it's grouped into two different buckets. The first, as you mentioned, is, you know, seeking out educational opportunities or additional training. The second is more along the lines of thinking about these interpersonal dynamics and overall boardroom dynamics that we've already been talking about, how to seek relationships with fellow board members, you know, encouraging more diverse viewpoints, being more willing to speak up during discussion. And so, you know, we could continue to hypothesize about why that statistic of director discontent, for lack of a better phrase, is so high. And you know, there one director could think, well, I don't think this director is contributing meaningfully to discussion and maybe they should no longer serve on the board. On the other hand, that director may not feel comfortable speaking up during discussion. And so that self reflection, it goes both ways, right? I think individual directors, seeing that they can take a step back and reflect on how can I do more to encourage my fellow board members to speak up or share different perspectives, is already very helpful in trying to address that first key finding. Because if you don't do that, then the boardroom and the dynamic stays static and nothing changes.

B (21:49)

So speaking of that, so they're saying, hey, I realize these are things I should be doing. Will they? Because I often wonder, is this, you know, the number just keeps going up. And when we look at who they're bringing on boards, I mean, in the survey, it's quite clear they're still looking for the same skill sets they've always looked for, right? They're looking for industry expertise, financial expertise, operational expertise. They're not looking for some of the things that, for example, CEOs say they want, like international expertise. So is this kind of like, yeah, I know I need to go on a diet and go to the gym more often. I know I need to do that. And I still am on the couch watching Netflix. I mean, is it like that or are we going to actually see some change? What do you think, Katie? You've been seeing this for so many years. Do you think we're going to get there next year?

E (22:30)

I love that comparison, Dottie. I am going to go last half full on this and say that yes, if only because the pressure, external pressure on the director and the director's role and overseeing the company strategy and the risk strategy is only going to grow and the director skills required to oversee all of the complex areas that are being thrown their way. If you think about it, the average director, their former CEO, cfo, executive academic, and they're now tasked with understanding, at least at an oversight level, cyber, AI sustainability transformation, all of these complex, changing, evolving areas, they're going to have to be focused on their upskilling, they're going to have to be focused on having better relationships with management to better understand how the company is approaching different areas. And in terms of the board's dynamics, again, pressure, time sensitivity, all of these various areas you have to get through. If you don't have the right board culture and part of that starts with who your board leader is. If you don't have that culture and that, that dynamic in place, it's going to be really hard to get anything done and get anything done effectively. Now in a, in a wonderful world, we're going to see refreshment and self awareness and turnover that may not go anywhere fast anytime soon. But directors, individual contributions, that's one place where we could see some change. And that work takes some tiny tweaks to make a difference, I think, anyways.

B (24:09)

Well, another area that is sort of screaming, hey, this is an opportunity is in board assessment. So let's start to unpack some of the findings around board assessment, because there was a lot in this report, sort of the first one that stood out to me was the 78% of directors that said they do not believe that their board's assessment process provides a complete picture of overall board performance. And then the 51% that say that their boards are insufficiently invested in the assessment process. So, Ariel, help us understand those two findings. Is it, are they saying, hey, this is a check the box exercise, we don't really do anything with this information? Is that what we're hearing from here? I don't want to put words in their mouths.

D (24:46)

I think so. And I think that that checks with what we've also heard anecdotally in some of our discussions with clients and with board members on this issue. You know, I think, and I can, I could put my former investor hat on as well, because I should say that at least on the investor side, when you're trying to evaluate how effective a boardroom is, board assessments is a really helpful data point because it gives, it gives more line of sight into you Know, is a board taking the necessary steps to identify whether everything is functioning as it should be or functioning effectively. If there's an issue, you know, what steps has the board taken to address that issue? You know, is there an action plan that's been put in place? Are there concrete recommendations? And then I think most importantly, are they tracking those outcomes over time and making sure that change is actually happening? And, you know, I think when you're kind of on the outside looking in so often what you see is that you are not able to get that full picture and you're not able to really understand what the outcomes are of that assessment process and how things have changed. So I think it is really telling that directors are also telling us that on the inside, they don't have that complete picture either. So there's. This is ripe for a lot of change, I think, and maybe even potentially some disruption in terms of how boards think about the assessment process and how they're actually conducted. Maybe I'll. I'll stop there and see if Katie has anything that she wants to add, but I could probably go on about this for. For an hour.

B (26:18)

Well, you've just given us a perfect segue, Ariel, because two other data points related to assessment that I was interested to ask Katie about are the following. That only 22% of directors say that they use external facilitators for board evaluation or board assessment, and that 73% say they don't conduct individual assessments. So, Katie, is that the answer? Hire a firm to do individual assessments? Is. Is it that simple? What am I missing?

E (26:41)

I think that in the typical consultants fashion, I'm going to say it depends. I think that's part of it. You know, having an external facilitator is not something. I mean, in an ideal world, sure, you do it every year, but really a leading practice would be just to have them come in every few years. And to me, since we already know there's this collegiality issue in the boardroom and hard conversations are awkward. Bring in somebody that's not in the boardroom and have them lead this process and help facilitate the output and that piece of it. That said, it's still going to be up to the board leader to actually carry through and carry out whatever comes out of that assessment. So having an external facilitator is a great leading governance practice, doing that every few years as well as having individual assessments, because, again, you can look at the full board, you can look at the committee, and that's going to be helpful to a point. But you're going to want to look at individual directors for their contributions. And it shouldn't be seen as a gotcha exercise either. It really is to collectively make the board better. I mean, all of us have individual assessments in our executive careers. It's something that we're used to. So I think that's a piece of the puzzle. It's not the end all, be all, but I think it's definitely there's room for growth there since only, you know, less than a third of directors are telling us they have individual assessments. So that's one place that we could, we could start.

B (28:09)

Yeah. I will just share personally, you know, I get called a lot to come in and do board assessments. And I always know that that's code for it. There's someone we want to get rid of. And so I'm always a big fan of, you know, do some type of evaluation every year. And what you should be evaluating is how well did we do against the plan we set for ourselves at the beginning of the year? So that's probably problem number one is if the board's not setting its own plan for the year, what are they measuring against? Right. So it's point one. And then point two is I always think doing individual assessments like every three ish years is about the right cadence because you want to. I always, I mean, I always end up on nom and gov committees and I like that information because I want to know what committees to put people on. And so if I haven't done individual assessments, I might not get that as right as I could if I knew more about kind of what that person is thinking and doing and how things are going. I'd love to hear your thoughts about that. But to me, that's always code for there's dead weight we want to get rid of from this board and then we have to have a different conversation, which is, okay, so what else are you doing? This is not a magic bullet. Like, this isn't just going to, you know, wave a magic wand and get rid of the person. So let's talk about what else is going on. Do you have the same experience?

D (29:15)

Yeah.

E (29:16)

I mean, certainly by the time it gets to that point, sometimes that is, you know, there's a problem or there's something that a board needs help working through. But I like also your reframing the narrative a little bit that it's not just a tool for getting rid of somebody, but also it can help you figure out is someone better suited to a different committee. Right. Are there underlying problems that the board chair didn't know anything about, I. E. Culture and other things like that. So I definitely think it is one of those areas, again, that bears some time spent.

B (29:53)

Yeah. And I also find too, you know, sometimes by going through that process, you learn so much more about the individuals involved and you find out, oh, my gosh, I had no idea you had this experience. And we've never leveraged it. And if we did, you would be happier and we would be happier. And so sometimes it ends up with this really happy circumstance that we've just put the wrong person in the wrong place and we can leverage them differently and then they become a great board member. So sometimes it can have this really unintended happy outcome. Errol, what are your thoughts about that?

D (30:22)

Yeah, I think it's easier to be reactive. It's more difficult to be proactive. Right. And, you know, I think in the context of something like individual director assessments, we've touched on this a little bit, but I'll be a little bit more explicit in my thinking, you know, but board of directors is very different beast than being an employee at a company. And when you're a board member or if you're a committee chair or a board chair, it's just a completely different way of thinking in terms of how you interact with your colleagues. It's a team of peers, and you don't see each other day to day. You meet a few times a year. You may not even be meeting in person. You might be meeting in person or virtually here and there. And so it's more difficult, I think, when you're in that position, like if you're a nominating governance committee chair or a board chair, and you're thinking about conducting a board assessment or an individual director assessment, it's more difficult to make that assessment of an individual director because of how different the nature is in terms of what your role is. And so that's why I go back to. It's important to be proactive. Right. You don't want to wait until you let something fester or, you know, you're not meeting often enough, and something builds over time, and then it creates a really critical issue for the board. You want to take those steps to proactively plan for thinking about how you can continuously improve and make sure that you're integrating that improvement into the results and board outcomes.

B (32:01)

So I want to shift gears a little bit and talk very briefly about AI. You asked some questions this year about whether or not directors are using generative AI in their oversight role. Only 35% of directors said they are. But I will share with you that we recently did a little short survey of our own, asking a bit of a different question. The question we asked was, so have you ever used Gen AI to help you with board work? And half of them said yes. So I'm curious to know your thoughts about this. I imagine if you ask this question again next year, you'll see a different result because of course, there's more tools on the market, there's more protection around those tools. The tools themselves are getting better. They're more purpose designed for board work. So I think all those things are going to play into that number going up. But let's talk about this. I mean, what are some of the things that you think are going to be changing about this in the next year? And what do you make of the. What I would think of as kind of a lower number in this, in this report. Ariel, I see you smiling, so I'm going to ask you to answer first.

D (32:58)

This was one of my favorite questions and I'm glad that we elevated it this year. I think that you're right. We're going to see this change over time, and I'm looking forward to seeing how it changes over time. And one of the key questions that we, that we ask in the report is, you know, how quickly do we think boards are going to adopt AI and integrate it into their process? I don't know the answer. Maybe it's not going to be as quick as we think. Maybe it will be rapid. It is a relatively low number when we look at how many directors have started incorporating into their oversight role. And I appreciate that. You know, it's still a pretty nascent area. There are a lot of reasons why directors may not feel comfortable yet thinking about how to use AI, or maybe there are still access issues, legal risks and considerations that need to be considered. So I realize that this is still very much an emerging area, but I do think that we're going to see a lot changing in terms of the infrastructure and the environment that directors can tap into over the next few years.

B (34:05)

So I, I could literally talk to the two of you for the next week because I have so many other questions I want to ask you, but I, I realize I'm really abusing your time, so I'm going to ask you just to leave us with, you know, any, any data or any insights from this report or just any reflections on the report as a whole that you want to leave our audience with. And Katie, if you don't Mind, I'll ask you to go first.

E (34:25)

Sure. When I think there's a lot of different areas that we could pick, my brain is sort of ping ponging different ones. We spent a lot of time talking about the ass and bore culture and bar dynamics. But I'm going to pick a pull the thread rather on one that I think would support that. But as well as the AI topic, we were just talking about that, and that's born education. I think that there is a growing awareness among directors that what's worked in the past in terms of upskilling is no longer working and that it has to be a conscious, ongoing effort to be hearing from their own management teams, be hearing from third parties, to be out in the market attending events, and just continuously trying to drive their own education. I think when it comes to something like AI, the more they know, the more powerful it'll be both in their own use and overseeing. So I do think this is one area. Regardless of whether they have the budget for their company at the board level or not, seeking their own education is going to be really important.

B (35:32)

Awesome. Ariel, how about for you?

D (35:35)

I'll tie it back to accountability. It's really hard to be a corporate director today. There's so many different issues and priorities on the boardroom agenda. And I can imagine that it's overwhelming dealing with regulatory developments, AI inflation, you name it. Right. And I think that it could be easy to deprioritize thinking about governance and how to be effective from a governance perspective in this environment. Because you're focused on how do I address this issue right now, instead of thinking about what do I need to do to set this board up and to set the company up for success over the long term. And so again, I love this report because I think that what we do on our roadmap is try to pinpoint at least a couple of starting points for as an individual, here's how I can think differently about how to make sure that I'm not losing sight of that despite everything that's going on. And it could be as simple as making a goal for yourself to make sure that you have a one on one with every single director on the board of directors in one year. Could be that simple. Or it could be, you know, I want to take more of a, you know, a greater leadership role, especially if I am in a leadership role on the board, and try to reimagine some of the processes that this board has in place so that it can be more proactive in thinking about and addressing that Long term perspective so that you don't lose sight of that. So that I guess that's where I'd leave it.

B (37:11)

Well, we'll need to leave it there. But I just want to thank you both so much for coming on the show again this year and sharing the insights from the PwC Annual Corporate Director Survey. Thank you so much for joining us.

D (37:21)

Thank you. Thanks for having us.

B (37:23)

We've been joined today by Katie hall and Ariel Smailowitz, directors at PwC's Governance Insights Center. Thank you so much for joining us on the show.

C (37:39)

All right, Daddy, you and I've worked on the show for a long time. I have worked at Diligent for a long time. I have studied this report for a long time. I don't know. I.55% of at least one director needs to be replaced. Like, that is wild. I remember when we first started talking about this and it was like 45%, right?

B (37:56)

And we were like shocked that it was 45%. Well, you know, it's gone up, I think with maybe one exception, it's gone up every single year. And for it to be more than half. And then the crazy thing about that is you then ask them, do you do board evaluations? They're all like, oh, yeah, of course we do board evaluations. Is that process effective? Like, what is it, 35% or 25% say no. They say only 25% say, yeah, it's effective. Like, what are you doing?

C (38:20)

Yeah, yeah.

B (38:21)

Why aren't you taking the steps that you need to take to get your board where it needs to be? It's such an ongoing question for me. I. I don't understand. I mean, I do understand why it's hard. I get that it's hard. I get that it's very hard. I've served on enough boards where we've had deadwood, where we've wanted to make a change. And it is really hard to make a change. But honestly, you just have to do the work. You gotta do the work. I don't understand why they're not doing the work. Why?

C (38:48)

So, so, so this leaves me thinking, daddy, the number keeps going up, but this idea that the stakes are too high, there's so much to get wrong. We have to get this right. There's too much uncertainty just in the world in general that it's harder than ever to be a board member. Great. So what I keep coming back to is, is the model for board governance the right model for the world that we're living in right now? Like, just does Something else need to change in order for boards to be more effective?

B (39:21)

It's a really fair question, Megan. I don't have a quick and easy answer for you right now. I will tell you that Diligent Institute is in the very beginning stages of working with two other partners, actually three other partners on this thinking group around board composition and what we need to think about related to board composition as it relates to board effectiveness. So stay tuned. There'll probably be a paper published in the beginning of next year. But what I can tell you is just, I'll just reflect having been a board member a bunch of times. What I have found is when we have had a drumbeat for, we know we need to do a board evaluation. It's always code for someone's got to go and we got to figure out a way to show them the door that isn't, you know, humiliating for everyone involved. Because it's hard, right? It's hard. And so what I always argue for because I tend to serve on nom and gov committees and what I always argue for is okay, yes, let's, let's make sure we have an annual board evaluation process and then every three years let's make sure that we're doing individual peer to peer evaluations and let's bring in outside help. And that was something that came out loud and clear in this report. Nobody uses outside help. I think it was like 22% use an external consultant to help with their board evaluation process. And not that, you know, not that you always need to have outside help. But I will tell you, if your challenge is that you don't have the right board in place, having outside help might be critical because having that external person and they could be, you know, a consultant, it could be a firm, it could be a previous CEO or previous board member. Like, it doesn't always have to be like a, you know, a gun for hire. But if you've got that external view, who can come in and sit down with every single director, have candid conversations, take copious notes and then present a report back to the board that is denuded of any personal comments and gives guidance on. Here are the things that this board is struggling with. This is what I heard. Here are things you want to spend time on and then confidentially to the board chair and the chair of the non gov committee. By the way, this is what I heard from a couple of individual people that I got their permission to tell you. And sometimes what you hear is the very person they're all concerned about getting off the board is like, I've wanted to leave this board for years and I have no idea how to do it. I don't know how to exit this board and save face. And so I'm just sort of struggling. I'm. I'm at sea. I know this isn't right for me, but I don't know how to get off. Like, I'm just, I'm just not clear on the, like, the actual mechanics of how to leave this board without it looking like something went wrong with this company. And I can't have that be the case. Sometimes you find that out, and sometimes you find out that someone who is seen as, quote, unquote, dead, dead weight has actually just been positioned totally wrong. Like, they got on the board at a certain time, they were put on a particular committee because of their, their, you know, working life, and since then, they've gone on to do 30 other things. And this board is leveraging none of them. And if they were leveraging those things, they'd have this engaged, active, amazing, dynamic board member. But because they've misaligned that person's passion and talent in the wrong place, they're bored. And so they're just not, they're not doing anything. And again, they don't know how to change it. They don't know how to get a different committee assignment. They don't know how to even start the conversation because they're like, a little embarrassed. They're like, yeah, I got put on the finance committee and, you know, yeah, I know how to do the books. But, like, it's not really the thing that jazzes me up. Like, Meanwhile, I'm spending 15 hours a week on AI. Like, I'd really love to be on that innovation committee. Like, it's that individual one on one meeting. It's kind of the only time you get that stuff. And I really think that is a huge part of why you see these numbers continuing to be as bad as they are, where they're doing an evaluation process. But I guarantee it's a full board self assessment, check the box exercise, and they probably get the results. Maybe talk about them for 15 minutes at a meeting and never think about it again. So of course it's not doing anything. Of course it's not having any impact. All right, I'm off my soapbox. Megan, what do you think about all that?

C (43:15)

It's an important soapbox and one that I totally agree and one that you're right. Like, on the surface, yeah, it's a box ticking exercise, but it is Such an opportunity to really strengthen its work and add more value to the organization.

B (43:30)

I think so. Because, again, this might be Pollyanna Ish of me and naive of me, but I really, truly believe. Setting egos aside, I know there's always a little bit of an ego hit if you're no longer wanted, and that can be really hard to take. But at the same time, I don't know any directors, none who want to stick around if it's a bad alignment for their skill set. Like, every director I ever talk to says, I want to be a rock star. Like, I want to bring value, I want to add value. It's the thing they all say, I want to know how I can add value. And so if they're told, like, hey, the way this is currently positioned, you're not getting the value you want, and we're not getting the value we want, I don't think it's a fit. I honestly think a lot of them just are relieved. Yeah, they're kind of relieved. They're kind of like, I've known this for a while, and I didn't know what to do about it, because, of course, you know, quitting a board is. It's got a lot of ramifications. Like, people fight hard to get board seats, and quitting a board, you know, that can signal lots of things that you don't want it to signal. Yep. And maybe the truth is just this wasn't the right fit for me. That's why that process is so arduous, is that you really have to do a lot of vetting on both sides. And, you know, sometimes you can vet till you're blue in the face and still get it wrong. Yeah, they can get it wrong. You can get it wrong. And so especially in a world where.

C (44:46)

Just the General Dynamics are changing, Shifty, changing so quickly.

B (44:50)

What was your priority three years ago.

C (44:52)

Could be very, very different three years from now.

B (44:55)

Totally, totally. Totally. I mean, did we think five years ago that we were going to need a lot of board members with, like, trade policy expertise? I mean, like. No. Did we think five years ago we would need directors to know something about AI? No. I mean, you're so right, Megan. And things can move so quickly, and things can change, and we just. I think we probably just all need to do a little bit better job on our boards of just being honest with each other and with ourselves. And, yeah, it's hard. There's no question it's hard. Get outside help when you need it like that. For me, that was the big punchline from this conversation with our friends at PwC is like, you know, and again, they're not trying to shill for their services, but the point is, get outside help. I mean, it really makes a difference if you've got an independent third party who's just like, look, this is just what I heard. This is what you told me. Like, this is what I heard you tell me. I'm not making anything up here. I'm just. I'm repeating back to you what you all told me. And all it does is just open the door for a conversation. And even if that conversation is hard, at least you can now have it anyway. All right, well, that was enough of a preach. Our poor audience. They probably hung up five minutes ago. Well, Megan, that wraps up another very preachy 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 amazing, amazing dream team from PwC, Ariel Smilowitz, and Katie Hall. We'd like to also say some special thank yous to our podcast producers, Laura Klein, Kira Ciccicarelli, Steve Clayton, and our sponsors of the show, including PwC, KPMG, Wilson Sonsini, and Meridian Compensation Partners. And most especially, thank you to Diligent for letting us have a rant. 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 find more from Diligent Institute by going to diligent.com resources thank you so much for listening.

A (46:43)

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.