Diversity and ESG issues have been prominent on investor and board agendas in recent years, but a new survey suggests some directors are becoming fatigued by the attention placed on these issues.

According to the PwC survey, 63 percent of directors polled say investors devote too much attention to board gender diversity, up from 35 percent last year. Fifty-eight percent have the same view of racial/ethnic diversity, an increase from 33 percent in 2018.

The proportion of directors who say board gender diversity is very important had been growing steadily, from 27 percent in 2013 to 46 percent in 2018, but has notably declined to 38 percent this year. Similarly, those saying racial/ethnic diversity is very important rose from 23 percent in 2013 to 34 percent last year then dropped to 26 percent in 2019.

These changes are happening as US companies, particularly in the S&P 500, gradually increase levels of diversity, particularly in terms of female representation. The survey also finds that more directors than ever believe board diversity has benefits: 94 percent say it brings unique perspectives, 87 percent say it enhances board performance, 84 percent say it improves relationships with investors and 76 percent say it enhances the performance of the company.

This apparent discrepancy may be attributed to the fatigue of being continually told by investors and others about the need to boost diversity, the report’s authors suggest. ‘Boards have been hearing about it, hearing about it and hearing about it and they’re moving on,’ Paula Loop, leader of PwC’s Governance Insights Center, tells Corporate Secretary.

Despite this, the survey shows continued support for companies taking action to improve diversity. More than half (52 percent) of directors polled say they strongly back board policies of always interviewing a diverse slate of candidates and 49 percent strongly approve of search firm policies of always supplying diverse slates of candidates. But almost a third (28 percent) strongly – and a further 39 percent somewhat – support the notion that boards will naturally become more diverse over time.

Three quarters of respondents say their board is looking to increase its diversity and are more likely to say this is due to a desire for diversity of thought (51 percent) than to be politically correct (13 percent). But the attributes they say are important in generating that diverse thinking are changing.

Large majorities continue to say gender and racial/ethnicity are important, but just 39 percent say diversity of socioeconomic background is important for diversity of thought, down from 67 percent in 2017. Fifty-four percent say an international background is important, down from 77 percent two years ago. There are also decreases in assigning importance to age and board tenure.

Over the past two years a growing number of companies have started including board matrices in their proxy statements, Loop notes. But they are also starting to recognize the complexity of assembling a board that features people with variety along gender, ethnic, age and background lines, and increasingly have cyber-security experience, she adds.

ESG AND ENGAGEMENT

ESG has become a key item on investors’ agendas, and industry professionals expect that to continue into the 2020 proxy season. But a growing number of directors are baulking against this pressure. According to the PwC survey, 56 percent of directors say investors’ focus on environmental/sustainability issues is excessive, up from 29 percent in 2018. Forty-seven percent say the focus on CSR is excessive, an increase from 29 percent last year.

According to Loop, directors are beginning to feel their corporate agendas are being ‘hijacked’ by shareholders seeking ESG-based actions. But she says there is also widespread confusion among directors as to what ESG means, so boards may already be discussing ESG issues without realizing it. ‘Companies aren’t telling their stories very well,’ Loop adds. 

On a positive note, the survey finds that directors are taking an increasingly positive view of shareholder engagement. Although IR and governance teams have in the past sometimes struggled to get directors involved in discussions with investors, 51 percent of respondents say a member of the board other than the CEO took part in shareholder engagement over the past year.

Almost all (94 percent) of respondents say the correct investor representatives were present at the engagement meeting, up from 73 percent in 2016. There are also marked increases in the proportion of directors saying investors were well prepared for the engagement (91 percent, up from 63 percent) and that engagement had or was likely to have a positive effect on proxy voting (87 percent, up from 59 percent).  

This reflects increasingly mature engagement programs, Loop explains. Importantly, there is a greater ability to prepare an agenda for meetings ahead of time, which leads to more productive discussions. ‘I think directors have learned a lot about this process [in part because] investors have pressed them to up their game,’ Loop adds.