The role of the board has shifted such that key targets for directors this year include releasing the value of human capital within the company while also focusing on strategy and innovation, according to Stephen Klemash, EY Center for Board Matters (EY CBM) Americas leader.
Succession planning has traditionally been a central aspect of boards’ agendas and their most important human capital and talent-related work. But Klemash notes that a series of developments have changed this, including a number of corporate and CEO-based crises that have caused reputational damage to companies, the rise of the #MeToo movement and what is referred to as the fourth industrial revolution, which has greatly increased the value of intangible assets such as human capital.
According to a study conducted by Ocean Tomo, in 1975 tangible assets comprised 83 percent of the S&P 500’s market value, but by 2015 intangible assets made up 84 percent of that index’s market value.
Traditionally, CEOs have taken the lead on managing talent, but the increasing value derived from people means boards need to be involved, Klemash tells Corporate Secretary. Boards need to take a fresh approach to human capital, starting by making sure the company has the right culture – and while this is increasingly being taken into account, there is still work for boards to do in thinking about culture and talent, he says.
Klemash and his colleagues are spending a lot of time talking with boards about this topic, the information they need to address it and the growing importance of the chief human resources officer. Close behind is the need for boards to focus on strategy and innovation. The growing turnover rate of CEOs underlines what can sometimes be a short-term focus. The board therefore needs to be thinking about the long term and having greater involvement in setting long-term strategy, Klemash says.
Although human capital and strategy are areas where boards will be spending most of their time in the near future, EY CBM has a longer list of board priorities for 2020:
- Strategically prepare for growth amid increased uncertainty
- Accelerate the talent agenda and activate culture as a strategic asset
- Evolve enterprise risk management (ERM)
- Prioritize cyber-security and data privacy
- Address geopolitics from a strategic perspective
- Embrace ESG as a business imperative
- Redefine and better communicate long-term value
- Take a continuous improvement approach to board effectiveness.
For example, Klemash warns that ESG issues are still not getting enough traction in some boardrooms and urges boards to step back and recognize that they now constitute a business imperative. But EY CBM is receiving more inquiries about ESG matters, indicating a growing recognition that they present an opportunity to add to the business’ value and attract capital, he says.
Amid these priorities, an important area where corporate secretaries can assist boards is in terms of ERM-related information, Klemash advises. Boards want to receive a growing amount of data to help monitor risks and want that data to come not only from management but also from external sources, he notes.
The corporate secretary can help by keeping the board up to date on what information management is using and how it is being used. The secretary should also be posting useful articles on relevant topics about the company’s industry to the board portal, Klemash adds.
The priorities set out by EY CBM will in many respects require boards to think creatively. This in turn means it is important to think carefully about board refreshment and ensure there is diversity of thought among directors, Klemash says.
He also notes that it is important for directors to get out of the boardroom to attend innovation labs and work with management to expand their ideas. Corporate secretaries can help by learning – then telling the CEO – about what other companies are doing in terms of bringing in outside experts to talk to their boards, according to Klemash.