Fortune 500 Committee Chairs Assess a Year of the Pandemic

As 2020 drew to a close, NACD, along with cohosts Farient Advisors; Heidrick & Struggles; KPMG; PwC; Sidley Austin; and Weil, Gotshal & Manges, convened Fortune 500 audit, compensation, nominating and governance, and risk committee chairs to discuss critical issues that boards need to confront.

From planning through turmoil and governing with long-term strategy top of mind to considerations for CEO succession, the future of the pandemic, and diversity in the boardroom, the discussions all emphasized the critical importance of director judgment through this period of great uncertainty. Below are the key highlights from the council meetings.

Audit Committee Chair Advisory Council—ESG Metrics and Reporting

The NACD Audit Committee Chair Advisory Council discussed the continuing push from investors and stakeholders to disclose more specific information on their company’s ESG risks. John Rodi, leader of KPMG’s Board Leadership Center, cautioned against disclosing information just for disclosure’s sake, saying, “Director’s need to ensure that management has thought through why they want to report this information. Does it align with our strategic priorities? Is it embedded into our core business activities?” Delegates discussed the numerous ESG reporting frameworks and the difficulty of choosing a framework.

One director offered a solution, “We’ve looked at all the different standards that investors have stated they want and we’ve decided to take the parts that are most relevant to our business. Our goal is to be clear and following a framework’s every disclosure suggestion muddies the water.” With this growing focus on disclosure from investors, and the issue with narrowing down frameworks, delegates believe that boards must dedicate more time to working with their management teams to tailor an ESG disclosure framework to their corporation.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.