Respondents to the NACD report cited human capital and DEI strategies among key board issues.
The National Association of Corporate Directors recently released its 2022 NACD Private Company Board Practices and Oversight Survey, which assessed the key topics of conversation among directors of these companies. The survey revealed trends in several emerging areas affecting boards, including cybersecurity and DEI. To learn more about the key findings of the report, we spoke to Barton Edgerton, associate director of governance analytics for the NACD.
Directors & Boards: The increased competition for talent continues to be a major concern for boards. Why does it matter so much for private company boards, and what steps can boards take to ensure the right people are in the right positions?
Barton Edgerton: The competition for talent continues to be a top issue for both public and private company boards. When it comes to talent strategy, there are both challenges and advantages particular to private companies. On one hand, they must compete for top talent with publicly traded companies that, in many cases, have more resources or brand recognition. On the other hand, private companies may have more flexibility when it comes to the incentives that they can offer in order to attract this talent.
DB: In the area of cybersecurity board oversight, what stood out from the survey? What practices are boards adopting, and which are they behind on?
BE: In terms of cybersecurity oversight, private companies have adopted many key practices at rates similar to their peers. For example, 68% of respondents indicate that they have reviewed their company’s current approach to protecting its most critical data assets (compared with 72% of public company boards) and 65% have reviewed the most significant cyber threats and their company’s response plans (compared to 64% of public company boards). They have closed the gap in areas like the assessment of risks associated with employee negligence or misconduct.
DB: What did the survey reveal about board members’ opinions of their own understanding of cybersecurity?
BE: Private company directors were more likely to indicate confidence in their board’s collective understanding of cyber threats than they were to indicate that they were confident in their own. While this is also the case among public company respondents, the difference is more pronounced among private company respondents. The exact reason for this is not completely clear, but it may be notable that the practices that private companies lagged most behind their public company peers on included “attending individual director education events” pertaining to cyber-related issues and “leveraging internal advisors” for in-depth briefings on such issues. These differences were not drastic, but they may hint at potential pathways for improvement.
DB: Is ESG a priority for private company boards? What trends are they buying into, and which are they slow to jump on? Why should ESG matter to private company boards?
BE: ESG does not currently appear to be a top priority among private company boards. Fourteen percent of private company respondents indicate that their board has not focused on ESG issues over the past 12 months, compared to only 3% of public company respondents. Less than half (39%) of private company respondents indicate that their board has reviewed ESG-related risks and opportunities for the company, a prerequisite for more advanced practices. As an example of the gulf between current practices at private versus public companies, 18% of private company respondents indicate that their board has assigned clear ESG oversight responsibilities to specific committees, compared to 64%of public company respondents.
DB: Do the survey results suggest private company boards are making a more concerted effort toward human capital management? Why is it a practice that is important for private companies?
BE: A majority of private company boards now discuss an enterprise-wide talent development strategy (70%), and a majority of respondents (58%) indicate that their board discusses human capital strategy as a recurring agenda item. However, to an even greater degree than among their public company peers, more advanced practices, such as delegating specific elements of human capital oversight to relevant committees (28% vs. 44% of public companies) and reviewing existing charters to ensure adequate oversight of human capital (32% vs. 46% of public companies) have yet to take hold.
DB: How would you describe private companies’ commitment to DEI as it relates to the survey’s results? Does the survey indicate growth?
BE: While a slight majority of private company respondents indicated that their board’s understanding of DEI has improved compared to two years ago, it is clear there is room for improvement. For example, a quarter of respondents somewhat or strongly disagree that their board understands how DEI is connected with other board issues, such as strategy.
DB: What did the survey indicate about board dynamics? What are boards doing to improve their interactions with management?
BE: Overall, our survey found improvements to the flow of information between management and the board. A majority of respondents indicate that the quality of information presented to the board by management has improved across the oversight areas of ESG, DEI and human capital. A majority of respondents (54%) indicate that over the last year they have received more frequent reporting from management on critical risk indicators and increased the frequency of board-management interaction outside of formal board meetings. This is potentially the result of board adaptations to the COVID-19 pandemic, which both increased director comfort with remote/virtual interaction and necessitated more frequent updates.