Diversity, sustainability, risk assessment: boards of directors need to catch up
In many boards of directors, sustainability is still thought of in the short term, as a recent Deloitte study shows: Only just 27 percent of companies have included long-term sustainability goals in the compensation systems for their executive board members. And only 23 percent of companies also say they conduct risk assessments several times a year. However, significant progress has been made with regard to the gender composition of boards of directors.
A diverse composition and smooth cooperation of the board of directors is elementary for compliance with good corporate governance. A recent study by the auditing and consulting firm Deloitte Switzerland analyzed economiesuisse's recently revised "Swiss Code of Best Practices for Corporate Governance," evaluated data from the annual reports of the 20 SMI companies and the 30 SMIM companies, and spoke with experienced board members.
Progress discernible - sustainability will gain in importance
The Deloitte analysis shows that a long professional career is still judged to be a significant criterion for the selection of members of the Board of Directors. Only 2 percent of people on boards of directors are younger than 40. The most represented age groups are 51-60 years (37%) and 61-70 years (42%). 8 percent of all board members are older than 71. In terms of expertise, the areas of finance/banking (43%) and law (12%) dominate. Boards have made significant progress in terms of gender composition (see chart 1). In 2012, just 9 percent of all board members were women; by 2022, that figure had risen to 32 percent. In addition, board members are sitting in their seats for less time than ten years ago: The average length of a board mandate in 2022 was between 5 and 6 years. In 2012, the average was still 6 to 7 years.
"The boards of directors are the supreme steering bodies of Swiss companies; they set the course for the important issues of the future. This includes sustainability. Aspects such as the impact on the environment and society will gain in importance on boards of directors," says Alessandro Miolo, Head of Audit & Assurance at Deloitte Switzerland and member of the Executive Board, assessing the results.
"Diversity" extends far beyond gender representation
However, for the tasks to be performed comprehensively and for corporate governance to be practiced, further points must be taken into account in the composition of the committees: Members should have different ways of thinking, apply different issues and bring approaches from other industries, corporate cultures and markets. They are helped in this by a broad range of experience as well as management experience at executive board level.
By including these factors, members of boards of directors do not just deal with their own area of expertise in isolation. Rather, representatives with a wide range of experience should also be able to contribute beyond their own subject area. These diverse perspectives are important for addressing forecasts and future issues and finding effective responses to concrete challenges. Boards with outstanding collaboration use this so-called "cognitive diversity" to their advantage. "The revised guidelines in the "Swiss Code of Best Practices for Corporate Governance" are an important response to current developments in sustainability, new legal requirements, and changing economic challenges. In the past, Deloitte has repeatedly worked to strengthen corporate governance in the Swiss economy - for example, through studies on various board topics, participation in expert committees of various associations and, last but not least, through concrete work for our clientele," says Reto Savoia, CEO Deloitte Switzerland.
Sustainability thought too short term
While 79 percent of all 50 SMI/SMIM companies surveyed already publish a sustainability report that addresses challenges, objectives and progress in the area of financial, social and environmental sustainability (ESG). At the same time, only just 27 percent of companies have included ESG objectives beyond the coming financial year in the compensation systems for their executive board members (see chart 2).
There is also a need for further action in risk management, which plays a key role in achieving goals and protecting the company's reputation. Only 44 percent of the companies surveyed reported that they conduct annual risk assessments. One-third of the annual reports did not contain any information on the frequency of their risk assessments, which are carried out by the BoD. The situation is similar when it comes to whistleblowing: 35 percent of all companies do not have a specific hotline for independent and anonymous reporting of suspected violations of applicable laws, regulations or codes.
"Instruments such as the whistleblowing hotline or measures to anchor the risk culture at the top of the company are elementary, so that companies can actively manage risk, identify weak points and thus contribute to protecting their reputation as well as Switzerland as a business location. Far-sighted thinking is central to risk management. This enables the board of directors and management to act in a prepared and pragmatic manner instead of just reacting," Alessandro Miolo continues.
Source: Deloitte
