Talent and the Board: Beyond the Tone at the Top

“Tone at the top” has been a byword in governance ever since the 1987 Treadway Commission coined the phrase as a way to combat financial statement fraud. The idea was that to ensure an ethical organization, directors and officers needed to set an ethical example or “tone,” which would ripple through the organization, much like a sound wave. But despite this emphasis on director ethics, corporations continue to fall prey to ethical scandals. From the recent scandal at Activision Blizzard to the long-ago fraud at ZZZZ Best, it seems clear that board “tone” is not enough; time is also required—specifically, taking time to get to know top decision-makers and the teams they lead. 

It is one thing to say, “people are our most important asset,” and it is quite another to devote keen attention to that asset. Devoting this kind of time to human capital is now a disclosure requirement. As of early 2023, public companies have spent the past two years including in their annual 10-K filings to the US Securities and Exchange Commission “a description of a registrant’s human capital resources, including any human capital measures or objectives that the registrant focuses on in managing the business.” Gibson Dunn & Crutcher analysis shows that 91 percent of S&P 100 companies now make detailed disclosures of their programs for talent attraction and retention, while 85 percent disclose their approaches to employee compensation. Also, more than half make disclosures of diversity statistics by both race and gender, as well as of workplace safety and health, with 41 percent making disclosures on their programs for mental health.

As much progress as companies have made in disclosing efforts related to human capital, meeting disclosure requirements is not the same as a company doing what they disclose well. Boards must also work with management to actively engage with the workforce and find solutions to issues important to them and the success of the business alike. Offering employees support for mental health issues, for example, can not only help the individual, but may mean that that individual will be more authentic and engaged during the workday. Implementing and monitoring programs to elevate workforce diversity can both show talent that the company cares about matters that are important to them and set the company up for greater innovation. When it comes to implementing new technologies, such as those powered by artificial intelligence, it benefits both talent and the business to upskill workers to use these tools or to apply these tools to automated tasks so that talent can focus on more strategic work.

Talent issues are existential. Boards must ask management and themselves: How do our people fit into our long-term strategy? How can our company better support our employees so that they’ll want to uplift that strategy? And how can the board support efforts from the top, beyond setting the “tone”? The future of your company could depend on the answers. ■

This article is from the Winter 2023 issue of Directorship.