Our survey of FTSE 350 board chairs, conducted over the summer of 2022, shines a light on current board trends and priorities. Ninety-five chairs responded to questions about what is front of mind as they lead their boards into a period of economic and political uncertainty.
Board priorities
Despite the many macroeconomic and geopolitical headwinds, chairs remain focused on strategy and value creation. Human capital issues including leadership succession and culture and workforce transformation are also important agenda items, alongside digital transformation and environmental, social and governance (ESG) oversight.
Top six board priorities over the next three years
ESG oversight
ESG and/or sustainability experience comes sixth on the list of priorities for board chairs when seeking new directors. This is explained by a growing emphasis on developing the awareness and capabilities of all board members. For example, Chapter Zero, the UK Directors’ Climate Forum, emphasises the importance of equipping all directors to lead crucial UK boardroom discussions on the impacts of climate change.
Where chairs are focusing their oversight of ESG
Recruiting new board members
The average tenure of non-executive directors is 4.3 years and there was a 13% turnover of board seats, according to the 2022 UK Spencer Stuart Board Index. Fewer boards than we might expect have a formal rolling succession plan for directors, although board chairs increasingly start board recruitment well ahead of retirements, given how competitive the market is.
48%
of chairs say they start looking for a new director 12+ months
before retirement of the current director.
21%
of boards have a rolling plan for director succession.
Top three recruiting considerations
49%
of chairs said they will be prioritising previous board experience
over other director candidate characteristics over the next 12 months. It may be that chairs are looking for more board experience to balance what has been a significant increase in the number of first-time directors appointed to boards in recent years.
Top five types of experience boards are looking for
CEO succession
As noted above, board chairs described CEO succession as their third highest priority over the next three years (behind core strategy and value creation). Our view is that preparations for CEO succession should start from day one of a new CEO’s appointment.
How far in advance of a CEO transition does CEO succession begin?
Chairs offered the following comments:
“This is a constant process. I hope our CEO stays another 10 years; but he may be tempted away from us at any time. So we keep a constantly updated plan to cope with this.”
“We have a rolling succession plan process for all
members of the executive leadership team.”
“Historically not well done, but changing to create a talent pipeline.”
“Succession is a permanent theme for my board. The board
will be fully involved in the selection process, and I make a
point of discussing possible internal candidates as part of the
annual board review process.”
15%
of boards do not have a formal process for reviewing potential CEO succession candidates
Topics for 2023 and board preparedness
Inflation is the number one topic that chairs expect to be discussed in the boardroom this year, yet it is also something they believe their boards are well prepared for, unlike risks such as climate change or natural catastrophes.
Top five topics expected to appear on the board agenda in the next 12 months
Risk scenarios in order of board preparedness
What keeps chairs up at night?
In a world characterised by ‘certain volatility’ the risks facing boards seem to loom larger than ever. Chairs expressed their concern over “regulatory overreach” and “the relative decline of London as a financial centre”. Some noted that companies listed in the UK are undervalued, which “leaves them vulnerable to being acquired at prices that do not represent their true worth”.
Political instability remains a concern, in particular the “lack of clear and consistent policies on business from the UK government”. One chair noted “an increasing level of disaffection with the PLC governance regime”; another expressed concern that “public exposure of CEOs is causing a flight of talent away from public markets into the hands of private equity.”
Which geopolitical risks are of greatest concern to your board?
One chair expressed concern about “the resilience of management teams in a fast-changing environment that requires tactical agility and a regular reassessment of strategy.”
2023 looks set to be a year in which the resilience of boards, CEOs and senior executives will be tested to the extreme.