Changes in the boardroom
I’ve observed a number of changes in the boardroom in recent years. The most prominent is the focus of influence moving away from the audit committee.
The audit committee has held a bit more weight over the years, and this may be due to the fact it has become the ‘home’ of risk. While the whole board is responsible for risk, it has fallen on the shoulders of the audit committee to do most, if not all, of the heavy lifting around risk. This began to shift after the meltdown of 2008 when I begin to see more boards creating designated risk committees, and some even assigning risk to certain directors to follow and report on.
It is also important to note that the pace of change, as well as technology disruption to business models, have had the following effect in the boardroom and particularly in the perception of the audit committee:
- The retrospective nature of financial statements limits their usefulness as predictive tools.
- Research indicates financial statements no longer capture much of the value organizations create.
Recent research conducted by OpenMatters with Deloitte & Touche examined 40 years of data from the Standard & Poor’s 500 index and revealed that digital technologies are disrupting existing business models and their underlying sources of value. The research finds that investors assign higher valuations to organizations that embrace emerging technologies, such as big data, social media, the Internet of Things and mobility
As an important side note, many of the directors I work with and the director-level surveys I read, consistently show that strategy and risk hold the number one spot when asked about their concerns.
Other areas of change include:
- Increased director-shareholder interactions and director-stakeholder interactions.
- Majority voting standards for director elections and de-classified board structures have become the predominant practices.
- Separating the roles of CEO and chairman of the board is on the rise.
- The prevalence of executive summaries of the proxy statement and Compensation Discussion and Analysis (CD&A) as companies seek to provide clear descriptions of business strategies and pay programs.
- A focus on pay-for-performance culture with increased use of performance-based vehicles for senior executives.
- Increased recruitment of female board members.
What other changes do you see? Email your thoughts to firstname.lastname@example.org