Key Board Issues

Key Issues Facing Boards of Directors in 2022

The role played by directors is more challenging than ever before because of competitive pressures and increased volatility in the business environment. This is coupled with a legal structure improperly aligned with shareholder demands.

The following are common issues that the chairman of the board and directors face in their duties.

Management and boards have to prioritize shareholder engagement by responding to their concerns. This is important because their tenure is dependent on maintaining shareholder confidence. Also, due to corporate governance reforms, shareholders have empowerment based on greater voting rights.

The board’s concerns are frequently motivated by short-term shareholder value maximization requirements. Engaging with shareholders is beneficial and appropriate because it protects against expensive and distracting fights and provides valuable input. Therefore, directors must be cautious in considering the interests of all stakeholders and not just comply with the requests of activist investors.

Another issue facing a board of directors is oversight of corporate conduct. The board governance structure should enable reporting of internal misconduct that could end in reputational or legal exposure for the corporation. Furthermore, company boards should ensure that such issues are investigated independently and thoroughly. Boards should anticipate scrutiny of how they handle the issues and have to be sure that their actions meet the practical expectations of stakeholders.

Boards of directors should also provide oversight on cyber security risks. They should ensure that the firm’s stake in this is identified, the risk tolerance determined and practical resources set aside to manage the risks. There should be a procedure to properly ensure the appropriate escalation of issues to execute the board’s oversight responsibility. Incidents can have substantial negative reputational and legal implications for the organization. The board’s oversight will be analyzed from retrospection by regulators and investors.

Insider trading is another issue that company boards have to deal with. Securities regulators are focused on insider trading to enforce priority. Boards should appreciate that the risk posed by insider trading will be judged from hindsight and a bigger perspective that’s beyond technical legality. The management and the board should handle decisions that involve trading blackouts. They should obtain all essential facts and receive helpful advice.

Uncertain economic conditions exacerbate the board of directors’ challenges in offering effective oversight. These economic conditions are also a challenge facing the company board of directors. The board must ensure the following to discharge its responsibilities effectively:

  • Have experienced and skilled management to handle a changing business environment
  • Management considers affiliated opportunities and business risks in the corporation’s business plan and tests them against practical scenarios.
  • The management’s incentives properly align with the corporation’s best interests in the long term.

The board of directors needs to consider stakeholder interests intensified in the current environmental, social, and governance landscape. ESG issues increase interest for investors, including stakeholders and those with particular ESG mandates. The situation becomes challenging for boards as they must balance potentially conflicting and competing interests. These interests include long-term sustainability versus short-term shareholder value maximization, considering the environment, community, customers, and employees.

As the former chairman of the board of Appvion, Inc. in Appleton, WI, I learned that a board needs to integrate the considerations into the corporation’s business plan and strategy. They should also collaborate with the management to detect relevant ESG risks and ensure they are managed and monitored by implementing suitable policies and frequent updates to the board.

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