According to surveys by PwC and Willis Towers Watson, the top concerns for UK boards in 2018 will be Executive Pay, Shareholder Engagement and Activism, Cyber-attacks, the General Data Protection Regulation, and Environmental, Social and Governance issues.
Top Issues for 2018
Here are the top issues for UK boards in 2018:
- Executive Pay
Executive compensation remains one of the most important issues for UK board members, according to a recent consultation by Willis Towers Watson.
“Remuneration committees that sought to make changes to executive compensation during 2017 faced numerous challenges, not least in managing the varying views of investors and proxy voting agencies”.
The prevailing view, according to the consultation, is that “the current focus on quantum is driven by a strong concern that market-based solutions alone are not sufficient to halt increases to executive pay and may lead to increased government intervention, which would not serve investors in the long term. Quantum increases should be justified in the context of value-add to the business and other stakeholders, rather than by external market benchmarking”.
To be effective, executive compensation plans should align the interests of executives and shareholders and tie pay with company performance. Directors review and approve pay plans for the CEO and other company executives. Nearly all directors (97 per cent) say incentive plans promote long-term shareholder value and achieve appropriate total compensation levels. But 70 per cent of directors say executives are overpaid. And 66 per cent say executive pay promotes income inequality.
All of these issues will be much discussed at UK board meetings in 2018.
- Shareholder Engagement
About half of all UK board members surveyed by PwC at the end of 2017 named shareholder activism and communication with shareholders as among issues of greatest concern.
See how Diligent can help your board of directors to improve their governance and communication practices in 2018.
“For the last several years, UK directors have become increasingly involved in shareholder engagement. These days, many institutional investors believe that this direct engagement is core to the job of being a public company director, and that these discussions are critical to the relationship. But not all directors agree”, the PwC survey notes.
There is no consensus among UK directors on this issue. The most common situations are when an activist takes a position in the shareholder engagement and activism company (48 per cent), when there’s a significant crisis at the company (46 per cent) and when the company has a negative say on pay recommendation from a proxy advisory firm (46 per cent). Only 22 per cent of the directors surveyed say that regular dialogue on a variety of governance matters, not triggered by a current issue or crisis, is appropriate — despite the fact that investors usually have a positive view of proactive engagement.
Concern about cyber-attacks has become a key issue for discussion on UK boardroom agendas, according to Paul Taylor, UK head of cyber security at KPMG, but most directors lack the skills and most boards have not sought collaboration with expert advisors in order to create effective strategies to combat the threats.
Even though one in eight cyber-attacks that occur in Europe is directed at UK companies, UK boards are not taking action. Just 31 per cent of the 105 FTSE 350 boards that responded to a UK government survey said they received “comprehensive, generally informative” reports about cyber crime. Only 28 per cent said they were trained to deal with an incident.
With board members now personally liable for failure to anticipate attacks, cybersecurity should be at the top of the agenda for UK directors in 2018.
- General Data Protection Regulation (GDPR)
The General Data Protection Regulation (GDPR) (Regulation (EU) 2016/679) also makes directors responsible for data breaches that leak personal data. The EU regulation will be transposed into UK law regardless of Brexit. It imposes the radical revision of the way in which companies store and process personal data. Companies must be prepared to show that consumers have given consent for the use of any data they are processing, and that the data is properly stored and protected from threats.
Boards must appoint a Data Protection Officer, and be prepared to oversee all data processing operations in which the company is engaged. A plan must be drawn up to show how personal data will be used, and according to what legal basis.
All of this should be giving UK boards plenty to do, but even with GDPR coming up for enforcement on May 25, 2018, only about 10 per cent of FTSE 350 companies were prepared for the new legislation.
- Environmental, Social and Governance
Many directors think environmental, social and governance (ESG) issues are not important for their companies, according to the PwC survey. In fact, 42 per cent say they won’t need to change their company strategy in the next three years because of environmental concerns.
Yet experts agree that the risks associated with climate or other sustainable issues tie directly to strategy. These ESG issues can present serious risks to a company’s ability to create long-term value. They can also present growth opportunities. Directors need to consider ESG issues in the board’s risk mitigation and long-term growth plans in the coming year.
Diligent Boards provides ideal environment for exchanges of views
Diligent Boards provides the ideal environment in which directors can speak freely about their views on all of these issues.
Diligent has the highest level of security, so that all discussion remains private. Diligent offers powerful messaging so that directors can talk, chat or message in real time without interruption.
With Diligent, you’ll have searchable libraries of investment reports, earnings statements, easy-to-execute questionnaires, streamlined and secure communications, to name just a few features. Diligent understands what boards need today to uphold their responsibilities, with features built to accommodate you. Our platform has real-time updates with constant improvements that respond to the evolving complexities of governance, risk and compliance.
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