The FT–ICSA Boardroom Bellwether is a twice-yearly survey of FTSE 350 companies that seeks to gauge the sentiment inside UK boardrooms. It canvasses the views of their 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. Some questions change from survey to survey, but the core remains the same to reveal trends and shifts in opinion.
The key findings of the Summer 2019 FT–ICSA Boardroom Bellwether Survey, which took place in June 2019 and was published on 27 August 2019, are shown below.
The business environment
Responses to this latest survey show that confidence in the global economy remains muted, with few predicting any improvement in global economic conditions. Only 10% of respondents predict an improvement, with the majority (51%) predicting a decline.
Pessimism surrounding the UK economy is even greater, with just 7% of respondents expecting any improvement and 69% predicting a decline. While the outlook for companies’ own industries is less stark – 43% predict a decline; 35% predict no change and 14% predict an increase – it seems evident that uncertainty about Brexit was continuing to weigh on people’s minds at the time of the survey.
The lack of clarity about Brexit in the run up to the survey might explain why plans to increase or decrease job numbers in the UK over the next year are unclear. The results are almost equally split into thirds between those who expect to increase numbers, those who expect to decrease job numbers and those who are unsure. Similarly, there is lack of clarity over whether a no-deal Brexit would hurt business, with 40% believing that it would, 40% believing that it wouldn’t and 20% unsure.
Board composition
The ambition to improve board diversity within the FTSE 350 continues, but with mixed results. Gender diversity has reached the highest level yet, with 83% of respondents believing their boards to be gender diverse. However, gender diversity is far more widespread than ethnic diversity – only 26% believe their boards to be ethnically diverse –, and the percentage of boards that are considered diverse in terms of geographical spread and wider business experience appears to be decreasing.
What is more, just 45% of respondents believe that their executive pipeline is sufficient to provide a pipeline of board-ready executives. More than a third (37%) believe that it is insufficient. On a more positive note, those companies that indicated that they are taking action to improve their pipeline are showing genuine commitment to doing so, with greater investment in executive succession planning in a variety of ways.
Risk and compliance
A slim majority of respondents (49%) believe that risk is increasing, compared to 43% who believe that risk is neither increasing nor decreasing. The factors that are causing this increase include cyber risks, global economic risks, Brexit, geo-political tension, climate change and other risks. Interestingly, given the amount of media focus in recent times, Brexit and climate change were chosen respectively by just 9% and 6% of respondents as a major factor. Geo-political tension, global economic risks and cyber risk are all rated as more important factors. Climate change is clearly an issue that boards are grappling with, however, as 72% of boards have discussed issues relating to climate change at least once in the past year.
In the midst of the 4th Industrial Revolution, AI is not yet receiving the attention that one might expect. Just 49% of boards or board committees have discussed the risks and opportunities of AI. Of those that are considering risks and opportunities of AI, many view it as an opportunity rather than a risk. There is some concern about the ethics of AI, however, as well as anxieties about data privacy, cyber risk, disruption of the labour model and the impact on employee morale.
Other areas that boards are focusing their attention on include sexual harassment guidelines and the ability to employ skilled staff.
Corporate governance
Culture, engagement and executive pay remain areas of focus for UK boards. The majority of boards have discussed issues relating to corporate culture in the last year, with 94% of respondents having discussed it at least once and 49% having discussed culture at least twice.
In terms of getting the workforce voice into the boardroom, most companies (42%) favour the designated non-executive director option, ahead of 26% preferring a combination of the three options suggested by the Financial Reporting Council.
With regard to executive pay, 55% of respondents have made changes to a remuneration policy following feedback from investors. Interestingly, 43% of companies responding to this survey have not because none were requested – the highest figure since we began asking this question in winter 2017 when the percentage was 28%. This suggests that investors have other areas of focus or that more companies are proposing policies with which investors are happy.
Remuneration committees now consider a variety of measures when deciding on executive pay, including pay structures and incentives across the wider workforce, the pay ratio between the chief executive and the average employee, share plans and the gender pay gap. In terms of the latter, only 37% gave consideration to this element a year ago. Now 68% do.
The emphasis on gender pay gap reporting has undoubtedly focused minds with the number of companies that have made changes to policies and strategies increasing from 9% in winter 2017 to 29% in summer 2019. Furthermore, almost two thirds of respondents (68%) are taking action to reduce the gender pay gap. However, only 35% have published an action plan, which suggests that there is more work to do.
Features
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