How Board of Directors Should Kick Off the New Year
What should be on the first boardroom agenda for 2018?
Start by asking yourself a few tough questions, before your investors do.
Here are my top 10 corporate governance actions for directors:
1. Do an inside/out activist review of your company.
If you don’t do it, the activists will. Ask your institutional bank to give an external “activist” assessment for strengths and weaknesses. If your grade is below peers, you’re already on their radar.
2. Rethink board committees.
All companies are tech companies now -- you can’t keep up without a dedicated board tech committee on innovation, digital transformation and cyber. Focus this committee on the future, through innovation and mastering change in the marketplace. Make it a driver of digital transformation. Also, have your governance committee review board workloads (especially the audit committee, which is overburdened). Consider shifting tasks to other committees.
3. Accelerate board refreshment and diversity.
Expect a loud drumbeat on board refreshment in 2018. Get ahead of it by reviewing board gender, age, minorities, global perspective, needed future skills, and most importantly, diversity of thought (in 2017, State Street Global Advisors voted against 400 companies based on weak diversity).
4. Address ESG (environmental, social, governance) Issues.
ESG is no longer a gadfly issue. Mainstream ESG advocacy began in the European Union, and has now transitioned to passive firms here in the U.S. In 2017, ExxonMobil faced a 62% proxy vote for stronger climate change disclosure. For 2018 expect ESG to become a standard proxy concern for major shareholder groups.
5. Shape your crisis management plan.
Identify your company’s top 10 risks, then require a specific plan for each. Pre-plan with outside public relations and social media firms for consumer blowups (what happens if an incident like United’s passenger dragging incident hits your company?)
6. Make cyber and data breach policies a top priority.
Start now with a policy that assures cyber oversight, with regular external penetration testing and relationships with outside forensic cyber experts and law enforcement. Assure a workable cyber breach crisis plan. Establish a ransomware policy (with a validated Bitcoin account). Give employees “anti-phishing” training, and review your cyber insurance (it usually has gaps).
7. CEO succession has never been more important.
Identify future leaders early and shape customized development plans for each. CEO tenure is now below five years. How deep is your bench?
8. Get ready for individual Independent Shareholder Services (ISS) director scorecards.
ISS now rates each board member by your company’s governance policies. Expect activists to pressure individual directors based on committee role, compliance, etc. Have your alternative investor relations narrative ready.
9. Reconfirm no sexual predatory practices in your company culture.
Check and confirm that your tone at the top does not tolerate harassment. Ensure strong compliance training as part of protecting company brand equity.
10. Know your pay ratios.
The new year brings disclosure on CEO/median employee pay ratios. If your ratio looks extreme, this could be a high-visibility issue. Prepare internally for the entire company knowing about this ratio, with response strategies.
Betsy Atkins is a three-time CEO and founder of Baja Corporation. She currently serves on the boards of public companies Cognizant, Home Depot Supply and Schneider Electric. She is also a member on the board of Volvo Cars (private) and the SAP advisory board.