Organizations were forced to adapt to the conditions of 2020 and many of the changes made are likely to continue into the future based on new priorities.
For larger companies, these changes begin with their board of directors who are being prompted to address financial and social pressures, a reimagined workplace, evolving regulatory demands and increased scrutiny on environmental, social and governance (ESG) activities.
A key aspect of a reimagined workplace that boards are tackling is the emergence and popularity of remote work. BDO’s “2021 Winter Board Pulse Survey” found that 40% of the 230 corporate directors of public company boards noted transitioning to long-term remote work environments for at least some employees is part of their 2021 corporate strategy. Additionally, the survey found that 30% of respondents are reimagining flexibility and remote work strategies in recognition of addressing changing employee needs and expectations, as well as cost-cutting measures.
“As boards and management teams reflect on how quickly companies shifted to work from home strategies and a rapidly changing tech-enabled environment, they have begun to look toward longer-term work strategies,” said Amy Rojik, national partner and director of BDO’s center for corporate governance and financial reporting.
Health and well-being came into focus during the past year, as many organizations offered their employees additional benefits, including time off to care for family and mental health days. The BDO survey found that it’s still a clear priority for most organizations, as 65% of boards remain focused on employee welfare as a short-term ESG priority.
“Although corporate plans and priorities are shifting,” Rojik said, “employee well-being and happiness remains a significant focus as boards look to preserve morale, preserve corporate culture and maintain performance levels among this important stakeholder group.
ESG and DEI: Long-Term Priorities
The BDO survey found that boards are focused on aligning ESG activities with long-term sustainability reporting, but there’s still uncertainty on how to report related metrics in a more standardized way. ESG reporting requirements was one of the most frequently cited changes boards anticipate for the 2021 audit and annual reporting process.
Of note, a quarter (25%) of board members cited enhancing sustainability reporting as one of their top three ESG priorities in the next 12-18 months, while 29% said the same for the long-term (18-36 months).
Directors are aware of shareholders’ and others’ attention to ESG priorities and are concerned about adequately promoting and reporting their initiatives as part of their overall corporate strategies, Rojik said.
One portion of these ESG conversations among boards and executives is centered around DEI efforts throughout the organization. This starts with building a more diverse board or leadership team, which 50% of respondents said was a long-term ESG priority.
“Proactive boards are looking at board succession planning as an opportunity to diversify thought and perspective in the boardroom,” Rojik said. “Compilations of qualified candidate slates are reflective of this goal as directors seek additional channels in sourcing potential board members — whether that be via various women- or ethnicity-focused organizations, industry groups, advisor recommendations or other non-traditional sources.”
In order to respond more broadly to these calls, boards are increasing focus on DEI as they build out their 2021 corporate strategies. Some tactics boards are employing, Rojik says, are:
- Establishing and tracking DEI effort metrics: 35%.
- Increasing transparency and disclosure around DEI progress: 33% — establishing responsiveness and accountability to matters identified by stakeholders as important to business.
- Enhancing DEI education within the organization: 33% — addressing unconscious and implicit biases and raising sensitivity to behaviors that may be counter to cultures that organizations are trying to cultivate.
“Changes in hiring strategies are also popular ways to demonstrate increased effort on DEI,” Rojik said. “Boards are aware that diversity must be addressed from the bottom up, ensuring that growth opportunities are explored and extended at all levels to ensure adequate representation.”
“Proactive boards are looking at board succession planning as an opportunity to diversify thought and perspective in the boardroom.”
Human Capital Plans
As boards’ mentalities have shifted and regulations have dictated, employees are viewed much more as a key stakeholder group. At the start of the pandemic, the immediate need was to keep employees safe from COVID-19. While employee safety and welfare remain a top priority, effectively implemented COVID-19 safety procedures allow boards to look ahead to recruitment and retention strategies.
BDO’s survey found that more than 20% of company boards are upskilling their workforce to address the potentially significant gaps in the advancing digital age of automation, artificial intelligence and higher degrees of agility being realized through remote environments.
Additionally, 17% are rightsizing staffing levels in reaction to economic realities that are either requiring companies to tighten their belts or to address a rapidly expanding business model that may be happening organically or as a direct result of the pandemic.
Regardless of a company’s current financial situation, Rojik said a clear strategy is paramount in how boards are approaching human capital decisions.
“Communication remains a critical mission of the boards and management to allay fears, to bring employees together and provide an environment that is supportive and reassuring in the face of uncertainty,” Rojik said. “As businesses stabilize, boards and leadership will once again begin to actively recruit for new talent to rectify disruption to staffing and productivity brought on by the pandemic.”