The FTSE 350 Boardroom Bellwether is a yearly survey, by the Financial Times and The Chartered Governance Institute UK & Ireland, that seeks to gauge the sentiment inside British boardrooms. It canvasses the views of FTSE 100 and FTSE 250 company secretaries to find out how boards are responding to the challenges of the economy, market conditions and the wider business and governance environment.
Questions cover a range of business concerns, topical issues and specific governance matters, to provide unique insight into what British boards are thinking. Boards have changed a lot since the first Bellwether survey back in 2011.
Once again, the latest Bellwether indicates how diverse boards are, compared with 12 years ago—particularly in terms of gender but, also, increasingly, ethnicity. The next issues that appear to be catching attention are policies and guidelines about minority ethnic groups in the workplace, which fewer than half of respondents said were fit for purpose; and socio-economic diversity, which four-fifths of respondents regard as a topic that needs discussion at the board level.
One of the most striking findings this year was that 81% of respondents feel that increasing reporting requirements are having an impact on the time available to discuss strategy. I found that to be a really interesting—and slightly worrying—statistic.
To be clear, the Bellwether also contained plenty of good news: that more companies are beginning to turn words into action on climate change, moving beyond ambiguous net zero pledges to more detailed transition plans; that 100% of our respondents have seen action taken on workforce remuneration in response to the cost-of-living crisis; and that 92% consider pay structures and incentives across—and the impact of the cost-of-living crisis on—the workforce when considering executive remuneration.
Nomination and succession
As businesses seek to build for their futures, board membership and succession have been primary discussion topics for some time. Back in 2016, the institute and EY published Coming out of the shadows, about the role of the nomination committee, and it is disappointing to see that so many of the issues discussed in that paper remain issues, seven years on.
This year, it is encouraging to see a slight improvement in confidence in the executive pipeline, but there is still a way to go. Companies suggested a variety of solutions that they have been trying in order to develop a sustainable pool of talented and diverse board members.
Corporate culture is firmly on the investor agenda; attention to it has been sharpened in light of recent high-profile failures. This reflects the recognition that how a company, its leaders and its employees behave has a direct impact on how it operates and, in turn, affects the company’s share price. Therefore, unsurprisingly, all respondents have included corporate culture in their board discussions in the last year, with 53% including it as an agenda item four or more times.
Other hot topics in the boardroom include risk; AI, which is slowly gaining traction; and climate change. Half of this year’s respondents record an increase in their exposure to risk, with cyber risk, global economic risks and climate change being the top three concerns.
Climate change
Year on year, there has been an increase in boards discussing climate change, now with over 62% of boards holding this discussion at four or more meetings in the last year.
Just four years ago, in the summer 2019 survey, this was a once-a-year topic for 34% of respondents, with 17% of boards never discussing it and with not a single respondent discussing it more than five times in the year.
Now, no respondents report never discussing the topic, whilst 15% note that the discussion has been had eight or more times in the last year.
And, as noted above, these discussions are being backed up by action, with 80% of boards having established climate change plans.
But that 81% of respondents who feel that increasing reporting requirements are having an impact on the time available to discuss strategy bothers me. And it was brought home to me even more as we worked on the institute’s response to the recent Department for Business and Trade call for evidence on non-financial reporting.
The challenge here was to balance the increasing expectations of investors, employees, clients and other stakeholders for disclosure of non-financial information against the need for this to be proportionate, and for the simplification and streamlining of reporting requirements.
The ever increasing breadth and depth of required topics for disclosure can contribute to a rise in boilerplate disclosures, in particular where companies feel obliged to report on issues which they believe are simply not material to their business. And boilerplate disclosures are, I would suggest, of little use to anyone.
In such demanding times, the performance of the board has never been more important, which is why the institute has also published a suite of guidance on board performance reviews. These are designed to support companies in procuring, managing and reporting on reviews, and to set out good practice for board reviewers, in order to achieve the best possible outcomes for boards and the companies they steer.
Peter Swabey is policy and research director at The Chartered Governance Institute UK and Ireland