At the end of 2022, Diligent Institute and Spencer Stuart convened 18 public company board members under the age of 50 at the New York Stock Exchange (NYSE) as part of the Next Gen Board Leaders Program. The following article contains insights from speakers at this Summit, including key investors and a legal and regulatory expert.

What are the biggest challenges on the minds of public company directors as we head into a new year? At the Next Gen Board Leaders East Coast Summit, a cohort of public company directors under the age of 50 met with three key institutional investors and a legal expert to discuss the tough questions.

Investor expectations

Amid what feels like an ever-expanding list of issues for the board to understand and oversee, our Next Gen Leaders asked investors about what they were looking for from directors. Their responses focused on four key issues:

1. Fit-for-purpose board composition
2. Evidence that the board is providing independent oversight
3. Focus on compensation packages
4. Shareholder rights

On ESG oversight

Unsurprisingly, ESG oversight was also discussed at length. S, and providing meaningful disclosures related to ESG risks, opportunities and board oversight.

The investors also touched on tying ESG metrics and goals to executive compensation. Their preference is for the board to select the metrics that best align executive compensation with long-term strategy. Including ESG metrics in executive compensation may be warranted if material and relevant to the company, according to the investors.

On board outreach

Our Next Gen Leaders also discussed board outreach with investors.

The investors also clarified that they are trying to move from quantity of conversations to quality. Due to volume, they have to prioritize engagement. They are tracking engagement requests, and if there is an issue at a company they may look to see if a company proactively reached out.

Legal environment

On day two, our Next Gen Board Leaders met with a legal and regulatory expert, who touched on the changing regulatory and legal environment. He maintained that directors must exercise their business judgment, and with that, they may rely on views and information provided by management, advisors, consultants and lawyers.

On being an informed and valuable director

He advised directors to ask and understand the following key questions:

• How does the company make money?
• What choices are being made?
• What options were considered but tabled?

Elaborating on the last point, he noted that CEOs sometimes fail to explain why they have not chosen or recommended a certain path forward. He urged our Next Gen Leaders to have that conversation and consider whether this decision is in the best long-term interest of the company with key stakeholders in the short, medium, and long term.

The most important relationship in the governance ecosystem, said our speaker, is between the CEO and the board. He offered a guiding question:

On being a next-gen leader

As rising stars to the boardroom in many respects, he advised Next Gen leaders to carefully evaluate board opportunities and choose the right ones.

On a New Era in Corporate Governance

A common thread throughout the sessions at the Summit was the idea that we are entering a new era of corporate governance. When it comes to stakeholders and corporate governance, we are in the midst of a recalibration of the role of the directors.

He reiterated that four basic principles of governance should continue to guide this recalibration for the board:

• Engaged oversight
• Informed decision-making
• Conflict-free business judgment
• Balancing competing interests

The goal is, as always, board oversight in the overall best interest of the enterprise and sustainable long-term growth.

To learn more about the Next Gen Board Leaders program, please reach out at diligentinstitute@diligent.com.