Top board priorities now include artificial intelligence, ESG, climate change, human capital and board culture, revealed a new survey.
While a host of issues – from economic to political to social – are of critical importance to public company directors, artificial intelligence (AI) is one area where most directors surveyed see a gap between the opportunities that AI presents and the expertise needed to harness them, according to new research carried out by the National Association of Corporate Directors (NACD), the authority on boardroom practices representing more than 23,000 board members.
The 2023 NACD Public Company Board Practices and Oversight Survey revealed that 95% of directors think that the adoption of AI will impact their business, yet only 10% believe their management teams are highly proficient with AI tools, and more than two-thirds said AI is not regularly discussed at the board level.
Besides AI, public directors are also contemplating a changing ESG landscape, citing a steadfast resolve for ESG programmes but noting that a lack of uniform standards is a challenge. Climate change is also an increasing topic of conversation in the boardroom, and human capital and board culture also feature prominently in the 2023 survey.
GROWING AREAS OF CONCERN
“Our Board Practices and Oversight Survey reveals data-driven insights into current boardroom issues facing public companies and their directors,” said NACD President and CEO Peter Gleason. “We know that topics like AI, climate change, and human capital are top of mind for public directors, but gaining a sense of the growing areas of concern, how much time boards are devoting to these areas, and what their biggest challenges are is incredibly helpful to NACD, our members, and the wider governance community.”
Key findings revealed that the boardroom focus on artificial intelligence is in its early stages. In fact, 95% of directors believe that the increased adoption of AI tools will impact their businesses, but it is not yet regularly discussed. Only 28% indicate that the topic of artificial intelligence features regularly in board conversations. Around 10% report that their management teams are very or extremely proficient with AI issues. As the risks and opportunities of AI technology grow, boards must plan how they will oversee this new technology domain.
ESG & CLIMATE ISSUES
The study also showed that boards remain steadfast in focusing on ESG, despite being challenged by unclear standards. A majority (62%) of respondents continue to believe that ESG programmes create long-term value within their organisations. Despite growing debates about ESG, more than half (58%) indicate that ESG issues have actually increased in priority.
The main governance challenge is a lack of uniform disclosure standards, which complicates measurement and reporting of ESG-related activities. In fact, 46% of respondents cite the lack of uniform standards as the most challenging aspect of providing oversight to ESG issues.
Climate issues are increasingly a common subject in board discussions. Around 44% of respondents indicated that the frequency of climate change-related board discussions has increased over the past two years. This increase in board focus coincides with a slight increase in more concrete action by the companies they oversee. In fact, 46% of respondents indicate that their company now has established climate targets and that they are on track or ahead of schedule in reaching these targets, compared to 43% last year.
HUMAN CAPITAL MATTERS
As board engagement on human capital grows, more formal oversight practices are emerging. Boards are just starting to formalise their oversight of human capital issues. Only 34% have delegated specific human capital oversight elements to relevant committees, and only 52% have discussed human capital strategy as a recurring agenda item.
While 82% of directors feel that their board has the expertise to oversee human capital-related risk, far fewer boards are actively probing how well human capital is managed across the enterprise. These boards are starting to apply the same rigour to human capital oversight as they do to financial reporting and strategy. For example, 36% assess how human capital drives performance, and 44% evaluate the effectiveness of the CHRO.
GROUP CULTURE & BOARD DYNAMICS
The survey also revealed that the board culture can be undermined by problematic individuals and group dynamics, and virtual meetings. Around 30% of directors considered problematic individuals to be amongst the most significant barriers to sustaining an effective board culture, underlining the impact of each individual director.
Group dynamics also have an effect, with 22% of respondents noting the deleterious effects of silos and subgroups of directors. Many boards have gained efficiencies through the use of virtual meetings, but excessive use of such meetings may exacerbate these barriers. A quarter of directors indicate that the lack of in-person interactions during virtual meetings has diminished the quality of discussion (26%) or board collegiality (26%).
Click here to read the full report.
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