August 4, 2025 • 26 mins
More C-Suite leaders view their boards as effective in 2025, but numerous challenges remain, including keeping up with AI.
More than one-third (35%) of C-Suite executives surveyed by PwC and The Conference Board say their board’s effectiveness is “excellent” or “good.” What are these boards doing well, and where do they need to improve?
Join Steve Odland and guest Arielle Berlin, director of the Governance Insights Center at PwC, to find out how boards are grappling with uncertainty, why companies want boards to focus more
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Episode Transcript
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Steve Odland (00:00):
Welcome to C-Suite Perspectives, a signature
series by The Conference Board.
I'm Steve Odland from The ConferenceBoard and the host of this podcast
series, and in today's conversation,we're going to discuss the latest joint
research from PwC and The ConferenceBoard on board of director effectiveness.
Joining me today is ArielleBerlin, a director in the
(00:20):
Governance Insights Center at PwC.
Welcome, Arielle.
Arielle Berlin (00:25):
Thanks so much for having me.
Steve Odland (00:27):
Arielle, tell us a little bit about PwC's Governance
Insights Center, cause not all of ourlisteners may be familiar with it.
Arielle Berlin (00:34):
Sure, I'd be happy to.
The Governance Insight Centeris a value-add service for PwC's
clients and a trusted thoughtleader in the governance community.
Steve Odland (00:44):
That sounds that sounds like legal boilerplate, Arielle.
Arielle Berlin (00:46):
Right, does it?
Maybe, but I'll tell you, the Center wasformed as a way to leverage the firm's
broad reach into boardrooms of companiesin every industry across the country.
And over time, our team's mandatehas expanded to all things related to
corporate governance and the board.
So we provide content, educationsessions, thought leadership, director
(01:11):
peer exchanges, and events, and all thisis designed to help directors navigate
what's going on in the boardroom andin the evolving business environment.
Steve Odland (01:20):
Yeah, and PwC is just an acknowledged expert here.
Started in the audit industry,you do consulting, and
experts in this area as well.
And that's why we have partneredwith you and done the fifth edition
of the PwC-Conference Board annualstudy of board effectiveness.
Talk about some of the surveyhighlights and key factors
(01:40):
contributing to board effectiveness.
Arielle Berlin (01:42):
Sure.
So as you mentioned, yeah, thisis the fifth year we've done the
report, and each year we partnertogether to survey management's
perception of board performance.
So this past year, we had 520executives from US public companies
participate in the survey.
And this represented different seniorexecutive roles, as well as a dozen
(02:05):
industries, mostly from companies thatwere a billion or more in revenue.
And the topics we surveyed arethe key factors that we believe
contribute to a board's effectiveness.
So those are board refreshment,board composition, board roles and
(02:26):
engagement, board time and attention,and top risks facing executives.
Steve Odland (02:34):
And we have to point out, you said it, but make sure
everybody understands that this isa survey of the C-Suite—the CEO and
her direct reports, essentially—andtheir impression of their boards.
And that can cut both ways.
Certainly, many of them are in theboardroom, but sometimes they don't have
experience on their own in the boardroom.
You have to temper a little bitof this with their experience,
(02:57):
and we do in our report.
So that's all good.
If you look at the survey resultsof these C-Suite members, they think
their boards, on the whole, continueto perform pretty well, right?
Arielle Berlin (03:12):
Yes, they do.
Steve Odland (03:14):
Yeah.
And they had positive gradeson corporate strategy and
understanding of key business risks.
Talk about some of thetop-line results here.
What are boards doing well in the eyesof management, and where are some areas
where they need to do something different?
Arielle Berlin (03:32):
Yeah, I'd love to get into that, but overall we saw that
35% of executives rated their board'soverall effectiveness as "excellent"
or "good." Now, that sounds low, butthis year, we saw a nice increase.
Last year, only 30% of executivesrated "excellent" or "good."
(03:54):
And I just want to add, we saw thatexecutives' trust in their boards
gained momentum in other areas.
88% of executives trusted their boards toeffectively engage with shareholders, and
70% said their boards could successfullyguide their company through a crisis.
So these numbers have actuallygone up from last year, so
(04:19):
we're really happy with that.
Steve Odland (04:22):
Yeah, those are really high numbers.
And so it sounds like the boardsare doing what the management
members think they should do.
There are big evolutions in what'sgoing on from a risk standpoint,
geopolitical situations, AI.
These are really big topic areas, andfor these management members to think
(04:45):
that their boards are on top of all ofthat is really a good sign, I think,
for corporate governance in total.
Arielle Berlin (04:52):
Yes, I would agree.
I think it's fair to say that bothexecutives and boards are facing
unprecedented uncertainty right now,though, and boards are grappling with many
areas of oversight and emerging risks.
So as you said, now, more than ever,boards need to make sure that they
know what the company's top risks are.
Steve Odland (05:15):
Yeah, and that's a joint exercise between management and boards.
And it's usually guided by an auditcommittee, but it's also expanded
to the other committees, as well.
They develop heat maps and understandcontingency planning and all of that.
And that's a really importantexercise, a fiduciary exercise
on the part of the board.
It used to be that gray swan events,or black swan events, I should
(05:38):
say, are once-in-a-lifetime deal.
But we've had 17 black swanevents in the last 40 years.
And so it's every couple of years, there'sthese unforecastable things that happen,
and you really have to stay on top of theever-changing environment and be prepared.
Even if you can't forecast it, youcan talk about contingency plans
(05:58):
for the unforecastable, right?
Arielle Berlin (06:00):
Correct.
And boards should be having regulardiscussions with management on
top risks, and top risks should,especially now, be built into
every board and committee agenda.
And boards should make sure that thesetop risks are being overseen by either the
full board or a committee of the board.
And I think directors shouldalso be asking executives what's
(06:23):
keeping them up at night andbe having frank conversations.
And I think that this will lead togreater alignment between the two.
Steve Odland (06:31):
Yeah, and it's a balancing act on the part of the board, because
the board is not accountable forrunning the company, management is.
And yet in order to oversee thatstrategy and the execution, boards
need to understand enough about runningthe details of a company that they can
assess it and they can provide advice.
(06:52):
But there is this kind of abalance that board and management
need to work out with each other.
And it varies by industry and by company,and it varies depending on what's
happening in the external environment.
Arielle Berlin (07:04):
I think that's true.
And I think, as boards continue tohave additional areas of oversight and
emerging topics, that balance is delicate.
In fact, one of the findings of our surveythis year was that 32% of executives
said that their boards overstepped theboundaries of their role, and that was
(07:28):
actually double from the previous year.
And I think it goes to whatyou were just talking about.
That perhaps, as board members tryto grapple with additional areas of
oversight, they're asking more questions,they're trying to wrap their heads
around all of it, and that may beperceived by management as overstepping.
Steve Odland (07:47):
Yeah, and it's hard on the part of a board because the board, they
want to be helpful, they want to offeradvice, but at the same time, it's not
their accountability to run the company.
And so sometimes their advice kindof devolves into tactical stuff
that drives management teams nuts.
But it's a delicate balancingact, and it depends on how
(08:08):
much stress a company is under.
Arielle Berlin (08:09):
Yes.
Yes.
And there, it may seem tomanagement that executives are
pushing back or overstepping.
Steve Odland (08:17):
Yeah, exactly.
One of the things was the rating onthe board's overall effectiveness, and
I think the number was only 35% saidit was "excellent" or "good." What are
the common disconnects besides thisoverstepping that we saw in the survey?
Arielle Berlin (08:33):
Yeah, so it's always surprising that the ratings
for "excellent" or "good" areso low among executives, even
though it went up this year.
But I do want to point out thatthere were some big discrepancies,
depending on the executive role,for this particular survey question.
This year, 72% of CFOs now rate theirboards as "excellent" or "good,"
(08:55):
but 40% of CIOs rated their boardseffectiveness as "poor." And I think a
large part of the disparity may be abouta knowledge gap that exists between board
members and, say, technology leaders.
Many CIOs may feel that theboard lacks a deep understanding
(09:17):
of areas such as AI or cyber.
So one thing, when we talk abouta disconnect, CEOs and CFOs
spend the most time with boards.
They have the most visibility intoboard dynamics and also probably
have the strongest grasp of aboard's role and responsibility.
(09:37):
So I would say that may be leadingto some of this disconnect.
Maybe having executives like the CIOspend more time with the board and have
a regular cadence of interaction canhelp foster collaboration and alignment.
And I think that could go a longway toward bridging some of the
(09:58):
gap that we're talking about here.
Steve Odland (10:00):
So yeah, it's a really important point that you're making.
Because this is what I was trying tosay before, that there are certain
positions in the C-Suite that just have noexperience as a board member themselves.
Most CEOs and CFOs are on other boardsand so therefore, they have the view from
both sides of the table, if you will.
But CIOs are a different deal.
(10:21):
Now, the technology environment,particularly with AI and everything that's
happening there, is rapidly changing.
And the CIO's frustration couldcome out of what they view as a
lack of understanding by the boardor maybe a lack of patience, even.
Cause a lot of boards are saying,"Hey, where are we on the whole AI
(10:42):
dimension, and are we keeping up, andare we investing enough?" And there's
only so fast some companies can go.
You have all of that tension, as well.
So it's a delicate balancing act,because you don't want the boards
running their business, right?
Arielle Berlin (10:56):
Correct.
Correct.
But I think maybe there is a languagegap, maybe they need to learn
how to talk to each other better.
Steve Odland (11:04):
Yeah.
And a few years ago, you heardthis cry for, we need to have
technology experts who are on theboard in order to balance that.
But the problem with that is that,if you balkanize the board, by
separating out and making somebodyan expert of each component on
a board, they then have a higherprobability of stepping on management
(11:26):
toes and trying to run that area.
And then not being a generalistboard, where they're able to
oversee strategy in total.
So there are pros and cons to this.
Arielle Berlin (11:36):
Yeah, that's interesting.
That's true.
And it makes me think of anotherfinding that we saw this year.
When we look at the survey results,the top three areas of expertise that
executives said they wanted to add totheir boards in the next 12 months were
international, AI, and sustainability.
And executives also said theywant more time in the boardroom
(11:59):
spent on AI and talent.
You're right.
If you don't have an expert, we shouldthink about what executives can do to
help the board strengthen these skills.
Steve Odland (12:11):
And this comes back to the chairman, the CEO, and the lead
director in terms of driving the agendaand the ability of management to interact
with the board and have sessions.
So you hear some boards are doingcasual sessions with the technology
experts to be able to ask thequestions and engage more deeply.
Or it's a reception that is focused onthat area, or it's a board education
(12:36):
session on certain of these things.
But whatever the tool is, your pointis the important one, which is you've
got to have engagement here, becausethey need to understand each other.
Arielle Berlin (12:47):
Exactly.
So by engaging with the full C-Suite,that may help bridge some of that gap.
Steve Odland (12:55):
Any other areas that came out of the survey as
specific skills or knowledge areasthat boards need to strengthen?
Arielle Berlin (13:02):
We talked about international, AI, talent.
Those were the big areas thatexecutives were looking for.
Steve Odland (13:12):
OK.
And here again, the agenda needsto be built around those things.
And talent is an interesting onebecause boards are accountable,
of course, for CEO succession, anda lot has been written on that.
And they, I think, for the mostpart, they're doing that fairly well.
But succession plans and talent extendbeyond that, particularly in a time where
new skills are needed to drive innovation.
(13:34):
And also, there are skillshortages in a lot of areas.
Arielle Berlin (13:38):
It is interesting.
Just an interesting percentage.
38% of executives in the surveythink that talent management
should be a priority for boards.
That's up from 12% last year.
That's a huge increase, especiallywhen talent was not necessarily a
typical topic that would make itsway to a board agenda in the past.
Steve Odland (14:03):
And that's an evolution, of course.
The problem with all of thisis, the boards of management
can focus on all these things.
And let's just say that everybodylistens to what we're talking about.
Every board changes, andthey focus on these areas.
Well, the problem is that they'renot going to be ready for the next
thing that comes along, right?
So there's always thisevolution of what comes at them.
Arielle Berlin (14:26):
True.
Very true.
Steve Odland (14:28):
Yeah.
We're talking about thelatest PwC-Conference Board
work on board effectiveness.
We're going to take a shortbreak and be right back.
Welcome back to C-Suite Perspectives.
I'm your host, Steve Odland, from TheConference Board, and I'm joined today
by Arielle Berlin, director in theGovernance Insights Center at PwC.
(14:48):
OK, Arielle, back to our survey.
An overwhelming number of executives,C-Suite executives, I think the number
was 93%, said that they wanted boardrefreshment, meaning they wanted a board
member or two or whatever to be replaced.
Talk about that.
Arielle Berlin (15:05):
Yeah, so this year's results on board
refreshment are a bit unsettling.
93%, yes, that is the correct percentage,and that's the highest percentage
that we've received on this question.
Our take on this is that the needfor changes in board composition has
become more evident and has actuallyaccelerated over the last few years.
(15:27):
With increasing risks and areas of boardoversight, executives may be looking
to replace long-tenure directors inthe hopes of bringing on directors with
skills in newer areas like AI or cyber.
And the reality is that tenures are long.
Last year, the rate of turnoverin the S&P 500 was about 8%.
(15:50):
So we have very low turnover.
Steve Odland (15:53):
Yeah, except that's on an average of 10 board
members, that's like one a year.
So that's, it's 10 to 12 yearsaverage tenure, which is not bad.
And I think the latest tenure isaround six or seven, six years, maybe.
And so this is another one where Icompletely understand management.
I remember when I was running companies,there was always a person or two where
(16:13):
you say, "Ah, it's time. It just, it'sjust time." And you can set an age,
or you can set a tenure limit, butit doesn't cover everybody neatly.
And this is where governance committees,lead directors need to be able to
be strong enough to step in and go,"OK, it's time for this person, even
if it was a short tenure, because it'sjust not working, or it's too long of
(16:34):
tenure," or it's a different reason.
And they need to have the flexibilityto do that and the strength to do that.
Arielle Berlin (16:41):
Strong board leadership is essential.
Steve Odland (16:44):
Yeah, absolutely right.
And some of the other factors, drivingthis is, sometimes it's just people
who have retired and stopped learning,and so their skill sets and their
information are dated or out of date.
And so when you're dealing withsome of the issues like the CIOs,
or dealing with people who arefive years or 10 years out of date,
(17:04):
that could be part of the problem.
So there are probably somecollinearity to these results.
Arielle Berlin (17:09):
I don't think there's a one size fits all.
Steve Odland (17:11):
Yeah, exactly right.
So how important do you think individualdirector assessments are in promoting
continuous improvement on boards?
Arielle Berlin (17:20):
We think individual assessments are best practice.
We encourage them, and we findthem to be an effective tool.
Look, these assessments can be usedto help the board identify skill
gaps and improve group dynamics.
Also, to accelerate necessarychanges in overall board
(17:41):
composition, as we just discussed.
Look, we still see boardsa bit hesitant to do them.
I think it can be helpful to try andreframe the purpose of the assessment,
to think about assessments as routinetools that deliver a continuous
cycle of feedback to help directors,to help the whole board, for that
(18:03):
matter, to improve their performance.
But having said that, as I said before,strong board leadership is essential.
The chair or dependent lead directorusually will run the process, or it
could be helpful to bring in a thirdparty, someone who can facilitate
the process and who's independent.
But it's really important that if you dothe assessment, you have follow through.
(18:24):
The board chair, the Independ leaddirector needs to be prepared to have
tough conversations, if necessary.
And the other thing I'll just sayis, these individual assessments,
they don't have to happen every year.
They can happen every other year.
So we think they're avaluable and effective tool.
Steve Odland (18:43):
Yeah.
And your point of one size doesn'tfit all is really important here.
I think the best practice is that todo all the above, but rotate it around.
So maybe one year you do written surveysfrom the board members assessing.
Another is interviews by the leaddirector with the other board
members to get verbal input.
Another one is then, every third or fourthyear, bringing an outside assessment.
(19:05):
It's got to be privileged, so it'sgot to be an attorney that provides
privilege, but rotate it around, andthen try to make it nonthreatening.
I think what people fear isgetting stabbed in the back or
being unfairly tarnished here.
It could be constructed in a positivefashion, starting with what are you doing
well that we'd like to see more of, andthat people really respect from you.
(19:27):
That's pretty darn valuable information.
Arielle Berlin (19:30):
That's, I was going to say, maybe you'll get positive feedback.
It's not all negative.
Steve Odland (19:35):
No, it's probably mostly positive.
Yeah, I would think.
But there's always some suggestionsand, gosh, that's true of all of us
in every walk of life, where peoplewould have suggestions for us.
And that should be viewed as agift, I would think, in some ways.
Maybe not, maybe notentirely, but you never know.
You talked earlier about someof the rapid developments in
(19:56):
AI and talent, in particular.
So what are you suggesting toboards that can help them enhance
their oversight in these areas?
Arielle Berlin (20:04):
First, I think making AI and talent, we talked about those before,
recurring items on the board agenda,making them core agenda items right now.
Also, we talked about this, but I thinkengaging the full C-Suite on these
topics to gain deeper cross-functionalinsights into these areas.
(20:27):
That will help the board.
I think the board needs to make surethat they're getting the information
they need from management in orderto provide the proper oversight.
That's critical.
And finally, boards need toeducate themselves and continue
to upskill on these topics, andmanagement should help with that.
Steve Odland (20:50):
Now, how much of this should happen in the total board
context versus the committees?
Arielle Berlin (20:56):
I think it depends on where these topics,
where they're delegated to.
So if you have AI oversight at acommittee level, which some companies
are doing now, then it can sit there.
And obviously up to board leadershipto decide what needs full board
attention at any given time.
Steve Odland (21:16):
Yeah, and I think the remits of the compensation committees
are being redefined here to includetalent and include succession.
And because you don't wantto turn every board meeting
into that level of discussion.
Certainly, the CEOsuccession at least annually.
But people are changing the nameand the mission to compensation and
talent, so that's an example, as well.
(21:37):
And depending on the industry, thereare technology committees that are not
SEC-demanded but an extra committee,just like there are finance committees
or public responsibility committees,sometimes there are technology
committees if your business is technologydependent, or this is really important.
And then, boards also should nothesitate to create temporary committees.
(21:58):
Let's do this for a few years to deal withsome of this, but you don't have to do
it forever, so it's not a one-way trip.
Arielle Berlin (22:04):
That's true.
Steve Odland (22:05):
So there are a lot of ways to come at this that would
help the oversight, I would think.
Arielle Berlin (22:10):
Yeah.
And boards need to figure out who'sgoing to own it and how often they're
going to delve into each of these topics.
But since management is saying herein this survey, we know that they want
boards to spend more time on thesetopics, boards need to figure out—
Steve Odland (22:28):
How to do it.
Arielle Berlin (22:29):
How to do it.
Steve Odland (22:30):
Yeah, and the right way for the values and the
character of their companies.
That's why we're very cautious not torecommend a one-size-fits-all approach.
So as you look ahead from these results,what do you see as the future corporate
governance trends, and obviously,there's feedback here for boards.
Maybe the trends are to address that.
But any other trendsthat you'd like to raise?
Arielle Berlin (22:53):
Look, I think technology is just going to continue
to play a bigger and bigger roleinside the boardroom and outside.
And we probably can't evenpredict to what extent.
So the trend, I think, will that boardswill become increasingly responsible
for oversight of these areas.
So board members need to continueto upskill themselves, to conduct
(23:20):
regular risk assessments, to identifyemerging threats and vulnerabilities.
And again, as I said before, to makesure that the board is receiving what
it needs from management in orderto carry out their oversight duties.
And I think these duties are going tocontinue to grow, and management and
(23:42):
the board hopefully can be focused onalignment and making sure that these
risks are being overseen appropriately.
Steve Odland (23:53):
Yeah, and I think you've got to throw in the geopolitical situation.
Because even companies that are focusedin one country, even if you're a US-based
and you know that your market is the US,the geopolitical issues are affecting
all elements of trade, supply chain,all of the trade and tariff issues.
I don't see this endingin the short term, do you?
Arielle Berlin (24:16):
No.
And I'm not going to predictanything, but I wouldn't think so.
It's funny, not funny, but youmentioned supply chain, and I'll just
add in here that we asked executiveswhat's keeping them up at night.
And the top three weretalent, AI, and supply chain.
Steve Odland (24:34):
Supply chain.
Yeah.
Arielle Berlin (24:35):
So this is what management's focused on right now.
Steve Odland (24:38):
Yeah.
Everything's shifting.
Any final thoughts on the resultsfrom the survey you'd like to share?
Arielle Berlin (24:44):
No, this was a great survey, and we really enjoyed it.
And I think that peopleshould read the report.
Steve Odland (24:52):
And they can find that on the PwC website.
Arielle Berlin (24:55):
Yes.
On the PwC website, or canreach out to me directly.
Steve Odland (24:59):
Yeah.
And they can also find it ontcb.org under our Governance and
Sustainability Center, ArielleBerlin, thanks for being with us today.
Arielle Berlin (25:09):
Thanks so much for having me.
It was great to be with you.
Steve Odland (25:12):
And thanks to all of you for listening to C-Suite Perspectives.
I'm Steve Odland, and this series has beenbrought to you by The Conference Board.
Welcome to C-Suite Perspectives, a signature
series by The Conference Board.
I'm Steve Odland from The ConferenceBoard and the host of this podcast
series, and in today's conversation,we're going to discuss the latest joint
research from PwC and The ConferenceBoard on board of director effectiveness.
Joining me today is ArielleBerlin, a director in the
(00:20):
Governance Insights Center at PwC.
Welcome, Arielle.
Arielle Berlin (00:25):
Thanks so much for having me.
Steve Odland (00:27):
Arielle, tell us a little bit about PwC's Governance
Insights Center, cause not all of ourlisteners may be familiar with it.
Arielle Berlin (00:34):
Sure, I'd be happy to.
The Governance Insight Centeris a value-add service for PwC's
clients and a trusted thoughtleader in the governance community.
Steve Odland (00:44):
That sounds that sounds like legal boilerplate, Arielle.
Arielle Berlin (00:46):
Right, does it?
Maybe, but I'll tell you, the Center wasformed as a way to leverage the firm's
broad reach into boardrooms of companiesin every industry across the country.
And over time, our team's mandatehas expanded to all things related to
corporate governance and the board.
So we provide content, educationsessions, thought leadership, director
(01:11):
peer exchanges, and events, and all thisis designed to help directors navigate
what's going on in the boardroom andin the evolving business environment.
Steve Odland (01:20):
Yeah, and PwC is just an acknowledged expert here.
Started in the audit industry,you do consulting, and
experts in this area as well.
And that's why we have partneredwith you and done the fifth edition
of the PwC-Conference Board annualstudy of board effectiveness.
Talk about some of the surveyhighlights and key factors
(01:40):
contributing to board effectiveness.
Arielle Berlin (01:42):
Sure.
So as you mentioned, yeah, thisis the fifth year we've done the
report, and each year we partnertogether to survey management's
perception of board performance.
So this past year, we had 520executives from US public companies
participate in the survey.
And this represented different seniorexecutive roles, as well as a dozen
(02:05):
industries, mostly from companies thatwere a billion or more in revenue.
And the topics we surveyed arethe key factors that we believe
contribute to a board's effectiveness.
So those are board refreshment,board composition, board roles and
(02:26):
engagement, board time and attention,and top risks facing executives.
Steve Odland (02:34):
And we have to point out, you said it, but make sure
everybody understands that this isa survey of the C-Suite—the CEO and
her direct reports, essentially—andtheir impression of their boards.
And that can cut both ways.
Certainly, many of them are in theboardroom, but sometimes they don't have
experience on their own in the boardroom.
You have to temper a little bitof this with their experience,
(02:57):
and we do in our report.
So that's all good.
If you look at the survey resultsof these C-Suite members, they think
their boards, on the whole, continueto perform pretty well, right?
Arielle Berlin (03:12):
Yes, they do.
Steve Odland (03:14):
Yeah.
And they had positive gradeson corporate strategy and
understanding of key business risks.
Talk about some of thetop-line results here.
What are boards doing well in the eyesof management, and where are some areas
where they need to do something different?
Arielle Berlin (03:32):
Yeah, I'd love to get into that, but overall we saw that
35% of executives rated their board'soverall effectiveness as "excellent"
or "good." Now, that sounds low, butthis year, we saw a nice increase.
Last year, only 30% of executivesrated "excellent" or "good."
(03:54):
And I just want to add, we saw thatexecutives' trust in their boards
gained momentum in other areas.
88% of executives trusted their boards toeffectively engage with shareholders, and
70% said their boards could successfullyguide their company through a crisis.
So these numbers have actuallygone up from last year, so
(04:19):
we're really happy with that.
Steve Odland (04:22):
Yeah, those are really high numbers.
And so it sounds like the boardsare doing what the management
members think they should do.
There are big evolutions in what'sgoing on from a risk standpoint,
geopolitical situations, AI.
These are really big topic areas, andfor these management members to think
(04:45):
that their boards are on top of all ofthat is really a good sign, I think,
for corporate governance in total.
Arielle Berlin (04:52):
Yes, I would agree.
I think it's fair to say that bothexecutives and boards are facing
unprecedented uncertainty right now,though, and boards are grappling with many
areas of oversight and emerging risks.
So as you said, now, more than ever,boards need to make sure that they
know what the company's top risks are.
Steve Odland (05:15):
Yeah, and that's a joint exercise between management and boards.
And it's usually guided by an auditcommittee, but it's also expanded
to the other committees, as well.
They develop heat maps and understandcontingency planning and all of that.
And that's a really importantexercise, a fiduciary exercise
on the part of the board.
It used to be that gray swan events,or black swan events, I should
(05:38):
say, are once-in-a-lifetime deal.
But we've had 17 black swanevents in the last 40 years.
And so it's every couple of years, there'sthese unforecastable things that happen,
and you really have to stay on top of theever-changing environment and be prepared.
Even if you can't forecast it, youcan talk about contingency plans
(05:58):
for the unforecastable, right?
Arielle Berlin (06:00):
Correct.
And boards should be having regulardiscussions with management on
top risks, and top risks should,especially now, be built into
every board and committee agenda.
And boards should make sure that thesetop risks are being overseen by either the
full board or a committee of the board.
And I think directors shouldalso be asking executives what's
(06:23):
keeping them up at night andbe having frank conversations.
And I think that this will lead togreater alignment between the two.
Steve Odland (06:31):
Yeah, and it's a balancing act on the part of the board, because
the board is not accountable forrunning the company, management is.
And yet in order to oversee thatstrategy and the execution, boards
need to understand enough about runningthe details of a company that they can
assess it and they can provide advice.
(06:52):
But there is this kind of abalance that board and management
need to work out with each other.
And it varies by industry and by company,and it varies depending on what's
happening in the external environment.
Arielle Berlin (07:04):
I think that's true.
And I think, as boards continue tohave additional areas of oversight and
emerging topics, that balance is delicate.
In fact, one of the findings of our surveythis year was that 32% of executives
said that their boards overstepped theboundaries of their role, and that was
(07:28):
actually double from the previous year.
And I think it goes to whatyou were just talking about.
That perhaps, as board members tryto grapple with additional areas of
oversight, they're asking more questions,they're trying to wrap their heads
around all of it, and that may beperceived by management as overstepping.
Steve Odland (07:47):
Yeah, and it's hard on the part of a board because the board, they
want to be helpful, they want to offeradvice, but at the same time, it's not
their accountability to run the company.
And so sometimes their advice kindof devolves into tactical stuff
that drives management teams nuts.
But it's a delicate balancingact, and it depends on how
(08:08):
much stress a company is under.
Arielle Berlin (08:09):
Yes.
Yes.
And there, it may seem tomanagement that executives are
pushing back or overstepping.
Steve Odland (08:17):
Yeah, exactly.
One of the things was the rating onthe board's overall effectiveness, and
I think the number was only 35% saidit was "excellent" or "good." What are
the common disconnects besides thisoverstepping that we saw in the survey?
Arielle Berlin (08:33):
Yeah, so it's always surprising that the ratings
for "excellent" or "good" areso low among executives, even
though it went up this year.
But I do want to point out thatthere were some big discrepancies,
depending on the executive role,for this particular survey question.
This year, 72% of CFOs now rate theirboards as "excellent" or "good,"
(08:55):
but 40% of CIOs rated their boardseffectiveness as "poor." And I think a
large part of the disparity may be abouta knowledge gap that exists between board
members and, say, technology leaders.
Many CIOs may feel that theboard lacks a deep understanding
(09:17):
of areas such as AI or cyber.
So one thing, when we talk abouta disconnect, CEOs and CFOs
spend the most time with boards.
They have the most visibility intoboard dynamics and also probably
have the strongest grasp of aboard's role and responsibility.
(09:37):
So I would say that may be leadingto some of this disconnect.
Maybe having executives like the CIOspend more time with the board and have
a regular cadence of interaction canhelp foster collaboration and alignment.
And I think that could go a longway toward bridging some of the
(09:58):
gap that we're talking about here.
Steve Odland (10:00):
So yeah, it's a really important point that you're making.
Because this is what I was trying tosay before, that there are certain
positions in the C-Suite that just have noexperience as a board member themselves.
Most CEOs and CFOs are on other boardsand so therefore, they have the view from
both sides of the table, if you will.
But CIOs are a different deal.
(10:21):
Now, the technology environment,particularly with AI and everything that's
happening there, is rapidly changing.
And the CIO's frustration couldcome out of what they view as a
lack of understanding by the boardor maybe a lack of patience, even.
Cause a lot of boards are saying,"Hey, where are we on the whole AI
(10:42):
dimension, and are we keeping up, andare we investing enough?" And there's
only so fast some companies can go.
You have all of that tension, as well.
So it's a delicate balancing act,because you don't want the boards
running their business, right?
Arielle Berlin (10:56):
Correct.
Correct.
But I think maybe there is a languagegap, maybe they need to learn
how to talk to each other better.
Steve Odland (11:04):
Yeah.
And a few years ago, you heardthis cry for, we need to have
technology experts who are on theboard in order to balance that.
But the problem with that is that,if you balkanize the board, by
separating out and making somebodyan expert of each component on
a board, they then have a higherprobability of stepping on management
(11:26):
toes and trying to run that area.
And then not being a generalistboard, where they're able to
oversee strategy in total.
So there are pros and cons to this.
Arielle Berlin (11:36):
Yeah, that's interesting.
That's true.
And it makes me think of anotherfinding that we saw this year.
When we look at the survey results,the top three areas of expertise that
executives said they wanted to add totheir boards in the next 12 months were
international, AI, and sustainability.
And executives also said theywant more time in the boardroom
(11:59):
spent on AI and talent.
You're right.
If you don't have an expert, we shouldthink about what executives can do to
help the board strengthen these skills.
Steve Odland (12:11):
And this comes back to the chairman, the CEO, and the lead
director in terms of driving the agendaand the ability of management to interact
with the board and have sessions.
So you hear some boards are doingcasual sessions with the technology
experts to be able to ask thequestions and engage more deeply.
Or it's a reception that is focused onthat area, or it's a board education
(12:36):
session on certain of these things.
But whatever the tool is, your pointis the important one, which is you've
got to have engagement here, becausethey need to understand each other.
Arielle Berlin (12:47):
Exactly.
So by engaging with the full C-Suite,that may help bridge some of that gap.
Steve Odland (12:55):
Any other areas that came out of the survey as
specific skills or knowledge areasthat boards need to strengthen?
Arielle Berlin (13:02):
We talked about international, AI, talent.
Those were the big areas thatexecutives were looking for.
Steve Odland (13:12):
OK.
And here again, the agenda needsto be built around those things.
And talent is an interesting onebecause boards are accountable,
of course, for CEO succession, anda lot has been written on that.
And they, I think, for the mostpart, they're doing that fairly well.
But succession plans and talent extendbeyond that, particularly in a time where
new skills are needed to drive innovation.
(13:34):
And also, there are skillshortages in a lot of areas.
Arielle Berlin (13:38):
It is interesting.
Just an interesting percentage.
38% of executives in the surveythink that talent management
should be a priority for boards.
That's up from 12% last year.
That's a huge increase, especiallywhen talent was not necessarily a
typical topic that would make itsway to a board agenda in the past.
Steve Odland (14:03):
And that's an evolution, of course.
The problem with all of thisis, the boards of management
can focus on all these things.
And let's just say that everybodylistens to what we're talking about.
Every board changes, andthey focus on these areas.
Well, the problem is that they'renot going to be ready for the next
thing that comes along, right?
So there's always thisevolution of what comes at them.
Arielle Berlin (14:26):
True.
Very true.
Steve Odland (14:28):
Yeah.
We're talking about thelatest PwC-Conference Board
work on board effectiveness.
We're going to take a shortbreak and be right back.
Welcome back to C-Suite Perspectives.
I'm your host, Steve Odland, from TheConference Board, and I'm joined today
by Arielle Berlin, director in theGovernance Insights Center at PwC.
(14:48):
OK, Arielle, back to our survey.
An overwhelming number of executives,C-Suite executives, I think the number
was 93%, said that they wanted boardrefreshment, meaning they wanted a board
member or two or whatever to be replaced.
Talk about that.
Arielle Berlin (15:05):
Yeah, so this year's results on board
refreshment are a bit unsettling.
93%, yes, that is the correct percentage,and that's the highest percentage
that we've received on this question.
Our take on this is that the needfor changes in board composition has
become more evident and has actuallyaccelerated over the last few years.
(15:27):
With increasing risks and areas of boardoversight, executives may be looking
to replace long-tenure directors inthe hopes of bringing on directors with
skills in newer areas like AI or cyber.
And the reality is that tenures are long.
Last year, the rate of turnoverin the S&P 500 was about 8%.
(15:50):
So we have very low turnover.
Steve Odland (15:53):
Yeah, except that's on an average of 10 board
members, that's like one a year.
So that's, it's 10 to 12 yearsaverage tenure, which is not bad.
And I think the latest tenure isaround six or seven, six years, maybe.
And so this is another one where Icompletely understand management.
I remember when I was running companies,there was always a person or two where
(16:13):
you say, "Ah, it's time. It just, it'sjust time." And you can set an age,
or you can set a tenure limit, butit doesn't cover everybody neatly.
And this is where governance committees,lead directors need to be able to
be strong enough to step in and go,"OK, it's time for this person, even
if it was a short tenure, because it'sjust not working, or it's too long of
(16:34):
tenure," or it's a different reason.
And they need to have the flexibilityto do that and the strength to do that.
Arielle Berlin (16:41):
Strong board leadership is essential.
Steve Odland (16:44):
Yeah, absolutely right.
And some of the other factors, drivingthis is, sometimes it's just people
who have retired and stopped learning,and so their skill sets and their
information are dated or out of date.
And so when you're dealing withsome of the issues like the CIOs,
or dealing with people who arefive years or 10 years out of date,
(17:04):
that could be part of the problem.
So there are probably somecollinearity to these results.
Arielle Berlin (17:09):
I don't think there's a one size fits all.
Steve Odland (17:11):
Yeah, exactly right.
So how important do you think individualdirector assessments are in promoting
continuous improvement on boards?
Arielle Berlin (17:20):
We think individual assessments are best practice.
We encourage them, and we findthem to be an effective tool.
Look, these assessments can be usedto help the board identify skill
gaps and improve group dynamics.
Also, to accelerate necessarychanges in overall board
(17:41):
composition, as we just discussed.
Look, we still see boardsa bit hesitant to do them.
I think it can be helpful to try andreframe the purpose of the assessment,
to think about assessments as routinetools that deliver a continuous
cycle of feedback to help directors,to help the whole board, for that
(18:03):
matter, to improve their performance.
But having said that, as I said before,strong board leadership is essential.
The chair or dependent lead directorusually will run the process, or it
could be helpful to bring in a thirdparty, someone who can facilitate
the process and who's independent.
But it's really important that if you dothe assessment, you have follow through.
(18:24):
The board chair, the Independ leaddirector needs to be prepared to have
tough conversations, if necessary.
And the other thing I'll just sayis, these individual assessments,
they don't have to happen every year.
They can happen every other year.
So we think they're avaluable and effective tool.
Steve Odland (18:43):
Yeah.
And your point of one size doesn'tfit all is really important here.
I think the best practice is that todo all the above, but rotate it around.
So maybe one year you do written surveysfrom the board members assessing.
Another is interviews by the leaddirector with the other board
members to get verbal input.
Another one is then, every third or fourthyear, bringing an outside assessment.
(19:05):
It's got to be privileged, so it'sgot to be an attorney that provides
privilege, but rotate it around, andthen try to make it nonthreatening.
I think what people fear isgetting stabbed in the back or
being unfairly tarnished here.
It could be constructed in a positivefashion, starting with what are you doing
well that we'd like to see more of, andthat people really respect from you.
(19:27):
That's pretty darn valuable information.
Arielle Berlin (19:30):
That's, I was going to say, maybe you'll get positive feedback.
It's not all negative.
Steve Odland (19:35):
No, it's probably mostly positive.
Yeah, I would think.
But there's always some suggestionsand, gosh, that's true of all of us
in every walk of life, where peoplewould have suggestions for us.
And that should be viewed as agift, I would think, in some ways.
Maybe not, maybe notentirely, but you never know.
You talked earlier about someof the rapid developments in
(19:56):
AI and talent, in particular.
So what are you suggesting toboards that can help them enhance
their oversight in these areas?
Arielle Berlin (20:04):
First, I think making AI and talent, we talked about those before,
recurring items on the board agenda,making them core agenda items right now.
Also, we talked about this, but I thinkengaging the full C-Suite on these
topics to gain deeper cross-functionalinsights into these areas.
(20:27):
That will help the board.
I think the board needs to make surethat they're getting the information
they need from management in orderto provide the proper oversight.
That's critical.
And finally, boards need toeducate themselves and continue
to upskill on these topics, andmanagement should help with that.
Steve Odland (20:50):
Now, how much of this should happen in the total board
context versus the committees?
Arielle Berlin (20:56):
I think it depends on where these topics,
where they're delegated to.
So if you have AI oversight at acommittee level, which some companies
are doing now, then it can sit there.
And obviously up to board leadershipto decide what needs full board
attention at any given time.
Steve Odland (21:16):
Yeah, and I think the remits of the compensation committees
are being redefined here to includetalent and include succession.
And because you don't wantto turn every board meeting
into that level of discussion.
Certainly, the CEOsuccession at least annually.
But people are changing the nameand the mission to compensation and
talent, so that's an example, as well.
(21:37):
And depending on the industry, thereare technology committees that are not
SEC-demanded but an extra committee,just like there are finance committees
or public responsibility committees,sometimes there are technology
committees if your business is technologydependent, or this is really important.
And then, boards also should nothesitate to create temporary committees.
(21:58):
Let's do this for a few years to deal withsome of this, but you don't have to do
it forever, so it's not a one-way trip.
Arielle Berlin (22:04):
That's true.
Steve Odland (22:05):
So there are a lot of ways to come at this that would
help the oversight, I would think.
Arielle Berlin (22:10):
Yeah.
And boards need to figure out who'sgoing to own it and how often they're
going to delve into each of these topics.
But since management is saying herein this survey, we know that they want
boards to spend more time on thesetopics, boards need to figure out—
Steve Odland (22:28):
How to do it.
Arielle Berlin (22:29):
How to do it.
Steve Odland (22:30):
Yeah, and the right way for the values and the
character of their companies.
That's why we're very cautious not torecommend a one-size-fits-all approach.
So as you look ahead from these results,what do you see as the future corporate
governance trends, and obviously,there's feedback here for boards.
Maybe the trends are to address that.
But any other trendsthat you'd like to raise?
Arielle Berlin (22:53):
Look, I think technology is just going to continue
to play a bigger and bigger roleinside the boardroom and outside.
And we probably can't evenpredict to what extent.
So the trend, I think, will that boardswill become increasingly responsible
for oversight of these areas.
So board members need to continueto upskill themselves, to conduct
(23:20):
regular risk assessments, to identifyemerging threats and vulnerabilities.
And again, as I said before, to makesure that the board is receiving what
it needs from management in orderto carry out their oversight duties.
And I think these duties are going tocontinue to grow, and management and
(23:42):
the board hopefully can be focused onalignment and making sure that these
risks are being overseen appropriately.
Steve Odland (23:53):
Yeah, and I think you've got to throw in the geopolitical situation.
Because even companies that are focusedin one country, even if you're a US-based
and you know that your market is the US,the geopolitical issues are affecting
all elements of trade, supply chain,all of the trade and tariff issues.
I don't see this endingin the short term, do you?
Arielle Berlin (24:16):
No.
And I'm not going to predictanything, but I wouldn't think so.
It's funny, not funny, but youmentioned supply chain, and I'll just
add in here that we asked executiveswhat's keeping them up at night.
And the top three weretalent, AI, and supply chain.
Steve Odland (24:34):
Supply chain.
Yeah.
Arielle Berlin (24:35):
So this is what management's focused on right now.
Steve Odland (24:38):
Yeah.
Everything's shifting.
Any final thoughts on the resultsfrom the survey you'd like to share?
Arielle Berlin (24:44):
No, this was a great survey, and we really enjoyed it.
And I think that peopleshould read the report.
Steve Odland (24:52):
And they can find that on the PwC website.
Arielle Berlin (24:55):
Yes.
On the PwC website, or canreach out to me directly.
Steve Odland (24:59):
Yeah.
And they can also find it ontcb.org under our Governance and
Sustainability Center, ArielleBerlin, thanks for being with us today.
Arielle Berlin (25:09):
Thanks so much for having me.
It was great to be with you.
Steve Odland (25:12):
And thanks to all of you for listening to C-Suite Perspectives.
I'm Steve Odland, and this series has beenbrought to you by The Conference Board.
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