Talent and Inflation Are Top Concerns, but ESG Lags Behind for Private Company Directors
Despite the conflict in Ukraine, a supply chain crunch, inflation, an ongoing pandemic, skepticism toward globalization, and other compounding, worldwide issues, the increased competition for talent remains the chief concern for private company directors, with 77 percent of respondents to the 2022 NACD Private Company Board Practices and Oversight Survey placing it among the five issues most likely to affect their companies in the coming year.
Inflation is also a growing concern, trending upward on respondents’ lists for two years in a row.“We’re proud to share the results of our latest Board Practices and Oversight Survey for private companies, which provide tangible, real-time benefits to directors throughout the country,” said NACD president and CEO Peter Gleason. “Beyond current trends and statistics, the report offers insights into board dynamics and other areas that are critical for boards to succeed in today’s rapidly changing and often tumultuous business environment.”
The survey was in the field between March 28 and April 21, 2022, and sought responses from NACD members who serve on private company boards. Below are other key trends from the latest report.
Environmental, social, and governance (ESG) practices have not matured to the extent seen in public company boardrooms. Fourteen percent of private company respondents said that their boards have not focused on ESG issues in the past year, compared to just 3 percent of public company respondents. Less than half of private company respondents (49 percent) said that their boards have discussed the linkage between ESG and company strategy in the last 12 months.
Cybersecurity threats are being met by boards adopting best practices in greater numbers. Sixty-eight percent of those surveyed have reviewed their companies’ approach to protecting data and 65 percent have reviewed the most significant cyber threats facing their companies. This is important as cyber threats, including those related to geopolitical events, continue to increase in both volume and complexity; indeed, 54 percent of respondents indicated that Russia’s invasion of Ukraine will have an effect on their cybersecurity programs and plans.
Human capital oversight practices such as discussing talent development strategies and reporting metrics are increasing. A majority of boards are now discussing enterprise-wide talent development strategies (70 percent) and broader human capital strategies (58 percent) on a recurring basis, but more work remains to catch up with public company boards in areas of advanced human capital practices such as committee delegation of human capital responsibilities and charter review.
Board dynamics are improving, owing in part to better and more frequent reporting from management. Fifty-eight percent of respondents cited quality input from management as one of the key drivers of exceptional board performance and 54 percent of respondents said that their boards have instituted more frequent reporting from management on critical risk indicators over the last year to increase board agility and responsiveness.
Climate discussions lack priority for private company boards compared to public company boards. Only 30 percent of respondents indicated that climate-related discussions have increased in frequency among their boards (compared to 54 percent of public company respondents). And 25 percent reported that climate change is not a concern for their companies.
The prevalence of diversity, equity, and inclusion (DE&I) practices has increased, but overall board understanding of related issues has slowed. There is fairly wide adoption of DE&I oversight practices, such as having management report key DE&I metrics to the board (59 percent) and discussing an organization’s DE&I priorities (62 percent). Only a slim majority (51 percent) reported that their boards’ understanding of DE&I issues has significantly improved compared to two years ago.
Understanding these key trends and using them as a benchmark against which to compare their own companies’ practices can provide private company directors with pertinent information to help them meaningfully lead their boards in 2023 and beyond. ■
This content was written by a team of NACD editors.