There appears to be a recent uptick in discontent within boards of directors, as more than half of them think someone on their board should be replaced.
That’s according to a new PwC study of 638 U.S. corporate directors, in which 55% of them expressed the sentiment. It was a noticeable, if not dramatic, change from the firm’s director surveys over the past few years, when the proportion favoring a board-member replacement hovered between 45% and 49%.
In the latest survey, 19% of participants said two board members should be replaced, while 7% indicated they’d like to be rid of more than two.
While governance oversight is the primary responsibility of the board, knowledge of dynamics within the board may influence how CFOs choose to interact with it.
One message clearly of interest to finance chiefs is a heightened attention to performance in today’s volatile business environment. The survey finding “suggests that directors are becoming more candid about underperformance among their peers,” PwC wrote in its survey report.
Among the directors who said they wanted a board member replaced, the most common reason, expressed by 41% of them, was that the person does not contribute meaningfully to discussions. About a third (34%) cited the presence of long-serving board members as a drain on performance; indeed, 56% of survey respondents have served on their board for more than five years.
Other reasons included a director’s lack of the necessary expertise for the role (21%) and an interaction style that negatively impacts board dynamics (20%).
PwC noted that on a board where “a few strong personalities dominate or informal hierarchies exist,” quiet or less tenured directors may feel discouraged from speaking up.
Of course, thinking a board member merits replacement is one thing, but pulling the trigger on such a move presents some challenges. Among survey participants who said their boards have been reluctant to take the step, 25% indicated that a desire to maintain harmony within the board was a factor, while 21% said replacing a director can be awkward or time-consuming.
Generally speaking, board members seem to be aware that their performance is under heightened scrutiny today. A vast majority (88%) of those polled said they could take at least one action to improve their board’s effectiveness.
However, PwC questioned whether boards are prioritizing the most important capabilities among their members. The report noted that the top three areas of expertise that boards plan to add remained unchanged this year: industry knowledge, financial acumen, and operational experience.
For their part, relatively few corporate executives (just 32%) think their board has the right mix of skills. In particular, while only 8% of directors said their board is planning to add international expertise over the next year, almost half (48%) of executives want that on the board, according to PwC research.
