What should your board of directors do to kick off the New Year?
Start by asking yourself a few tough questions (before your investors do) and take a close look at what your board diversity and next-gen company leadership. You have to prepare for the 2018 crises that you haven’t even imagined yet – hopefully avoiding them altogether by doing so. Here are my top 10 resolutions to hone your firm’s corporate governance for 2018:
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, SSGA 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 E.U., and has now transitioned to passive firms here in the U.S. In 2017, ExxonMobil faced a 62 per cent 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 PR 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 5 years. How deep is your bench?
8. Get ready for individual 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 IR 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.