The economic crisis, increased rules and regulations, and heightened scrutiny of boards’ roles have corporate directors feeling pressure to be more effective in the boardroom. PwC’s 2011 Annual Corporate Director Survey (the Survey) of 834 corporate directors offers insight into the biggest corporate governance issues facing directors today. Because 67% of respondents represent companies with more than $1 billion in annual revenue, the Survey illustrates the current boardroom thinking of many of the largest companies in the world.

The corporate governance landscape has changed over the past few years, and as it continues to evolve, directors are working to adapt. Their responses to the Survey indicate that executive compensation, risk management, strategy and succession planning are key areas of future focus. They are also concerned about information technology security and fraud.

"Say on pay” was one of the big stories from the past year, according to the Survey, as it was the first year shareholders had an advisory vote on executive compensation, thanks to the Dodd-Frank Act and the Securities and Exchange Commission’s say on pay rule. Nearly all companies passed their say on pay votes, but directors are still paying attention to shareholder concerns about executive compensation — 72% said they would reconsider executive compensation, even if shareholders voted in favour of their company’s compensation plan. Directors are trying to be more open about executive pay, as well. Nearly half said they changed their Compensation Discussion and Analysis (CD&A) to be more “plain English” so shareholders could better understand the details of the compensation plans. Fewer directors said boards are having trouble controlling CEO compensation — 44% this year compared to 58% in 2010.

Directors also seem to recognize the importance of transparency in general, as they increased communications with employees, major shareholders, analysts, proxy advisory firms, and the media over the past 12 months.

Risk management was an area of particular concern for the directors in the Survey. While more than 83% of directors said there is a clear allocation of responsibility for overseeing major risks on the board, only 19% said their board is very effective at monitoring a risk management plan that mitigates corporate exposure. Even fewer (11%) said their board is very effective at overseeing the company’s strategic use of technology and related risks. More than 40% of directors said it is difficult to add directors with risk management expertise, while more than 52% said the same about adding directors with technology expertise. Fifty-seven percent of directors want to increase their focus on risk management issues in the coming year, and nearly 38% want to devote more time to information technology issues.

Board members themselves are becoming tech savvy. More than 36% said they are using tablets in the boardroom, and 38% said they wished their boards would use them.

Strategy and succession planning are issues directors want to spend more time discussing in the boardroom — 59% want to focus on strategy this year, the same as 2010. The frequency of strategy discussions is also notable. More than half of directors are talking about their company’s strategic plan every six months, while 44% discuss it at least once a year. Regarding CEO succession, more than one-third (36%) of directors said they are not satisfied with their company’s CEO succession plan. And 59% of directors want to spend more time on the issue this year, up from 50% a year ago.

Diversity continues to be a challenge for boards, as more than half of directors say it’s difficult to add gender diversity. More than 65% say it’s difficult to add racial diversity.

In summary, directors are responding to stakeholder concerns, but they know they have more work to do. They recognize the continued need to adapt as the governance landscape evolves in order to enhance their effectiveness as overseers.

Don Keller is a partner in PwC's Center for Board Governance which provides thought leadership, points of view on contemporary governance issues, and training to boards of directors and the governance community.

This article was first published on the Harvard Law School Forum on Corporate Governance and Financial Regulation and is re-published with the author's permission.

by James Hyatt

So your company hasn't had an OMG moment over Facebook ethics?

As they say, Good Luck With That.

It has been almost a decade since Congress passed the Sarbanes-Oxley Act in the wake of the Enron, Tyco and WorldCom scandals, seeking to put in place a variety of measures to protect investors and address standards of behavior. Over the years, once-controversial practices about disclosure and ethics have become generally accepted standards.

But the social media explosion - from email and Facebook to blogs and Twitter – is making a hash of once-resolved issues and creating all kinds of new dilemmas.

--Businesses have less and less control over how they communicate with the public, while 24-7 bloggers feel free to snipe away.

--Job seekers find their private lives may no longer be private and employees worry that the boss is electronically looking over their shoulders.

--Consumers can't be sure their account information remains safe and have no way to tell whether favorable on-line comments about products and businesses are legitimate.

--Professionals of all sorts -- psychiatrists, attorneys, school teachers, reporters, and even NFL players – are learning to live with new, often controversial, social media rules. A customer's irate blog can undo months and years of corporate image work. A careless email can sabotage delicate contract talks or M&A negotiations. Failure to protect customer information can result in years of costly litigation. An old party-hearty photo may block a chance at a new job. Hitting “send” without thinking can torpedo an executive’s career.

In just one recent week:

--an email circulating among male employees at the PricewaterhouseCoopers Dublin offices – rating the ‘top 10’ new female recruits, with headshots – quickly went “viral” and drew widespread criticism. (Some tut-tutting newspapers, however, also saw fit to run the headshots as news.)

--an executive at Pacific Gas & Electric in California was put on paid leave after seeking to join, under an assumed name, an online discussion group critical of the utility’s plans to install “smart meters.”

--labor lawyers across the country warned clients that a  National Labor Relations Board (NLRB) office planned an unfair labor practice complaint against an ambulance company for firing an employee who posted negative Facebook comments about her supervisor.

--Britain’s financial regulator, seeking to address insider trading, ordered financial services firm to keep records of employee cellphone calls.

No wonder companies are rushing to build new defenses and adopt new policies to reinforce ethical behaviors and learning how to use social media to react to real-time problems. At the same time, individuals are rethinking their casual attitude about exposing personal information on the Web. And in Washington, government agencies are adopting new guidelines defining acceptable social media behavior.

Defining social media behavior is clearly a work in progress

A year ago, the Society of Corporate Compliance and Ethics and the Health Care Compliance Association looked at what organizations are doing about social media issues. Twenty-four percent of those surveyed said an employee had been disciplined in their organization for activities on Facebook, Twitter or LinkedIn, more often in the not-for-profit sector. But half of the respondents said their organization had no policy regarding employee online activity outside of work.

Technology search firm Robert Half in April asked chief information officers about social networking policies; 38% said their companies have tightened social networking policies, while 17% say the policies have eased. And 55% reported “no change”.

A recent survey by Deloitte of about 1,700 companies found that 26% said they had no social media policy which 34% answered “not applicable/don’t know” even though 84% thought every company should have a social media policy in place.

Your Social Media Profile Can Affect Your Job Prospects

A survey commissioned by Microsoft in December 2009 found that 79% of hiring managers and job recruiters reviewed online information about job applicants, and 70% of U.S. hiring managers surveyed said they’d rejected candidates based on what they found online. “Chances are you already have a reputation online, even if you don’t want one,” Microsoft says.  And three-fourths of the U.S. recruiters and HR professionals said their companies have formal policies requiring hiring personnel to research applicants online.

The survey firm declared that “Now, recruiters can easily and anonymously collect information that they would not be permitted to ask in an interview, and the survey found that recruiters are doing just that.”

Corporate and union attorneys went on alert early in November 2010 when word spread of the NLRB’s unfair labor practices complaint involving the Facebook posting. The NLRB said the company’s social media policies were “overly broad.”  The LegalTimes blog quoted the company as saying “although the NLRB’s press release made it sound as if the employee was discharged solely due to negative comments posted on Facebook, the termination decision was actually based on multiple, serious issues.”

Although an administrative law judge will have to rule in the case, Philadelphia-based law firm Morgan, Lewis & Bockius LLP declared that “all private sector employers should take note of this issue, regardless of whether their workforce is represented by a union.”

You Need a Social Media Policy

Social media behavior “can have real legal and economic consequences for businesses,” writes attorney Michelle Sherman in a Social Media Law Update Blog for law firm Sheppard Mullin Richter & Hampton LLP.

“A post may seem as innocent as an employee expressing a personal opinion.  However, if the person describes herself as working for a particular company, and then speaks on a highly controversial subject, her post could damage the ‘good will’ of the company. Or, the poster may be recommending a product to all of her Facebook friends without sharing that she happens to work for the product manufacturer in violation of fair advertising practices.”

Sherman says adopting a social media policy can show compliance with Federal Trade Commission guidelines about endorsements, and can better protect brand value “by ensuring that employees do not post unflattering material in association with the business.”

One of the most remarkable studies is the 130-plus-page Social Media White Paper, now in its second edition, prepared by Reed Smith LLP.  The paper review 13 areas where social media is impacting business – from advertising and marketing to trademarks – and declares “the key lesson is that rather trying to control, companies must adopt an altered set of rules of engagement.” Well worth a visit.

It has become increasingly common for major companies to issue specific directives on social media behavior.  While most encourage employee efforts to put companies in a positive light, they also spell out acceptable conduct. For example:

(Wells Fargo): “By posting content on this Blog, you expressly grant Wells Fargo (and its affiliates) the right to use or distribute the posted content in any form, worldwide, and in perpetuity.”

(Kaiser Permanente): “Be mindful of the world’s longer memory – Everything you say is likely to be indexed and stored forever, either via search engines or through bloggers that reference your posts.”

(FedEx): By posting to the FexEx Citizenship Blog “you agree not to post or transmit anything unlawful, threatening, libelous, defamatory, obscene, inflammatory or pornographic, or anything that infringes upon the copyright, trademark, publicity rights or other rights of a third party.”

(Mayo Clinic): “Where your connection to Mayo Clinic is apparent, make it clear that you are speaking for yourself and not on behalf of Mayo Clinic. In those circumstances, you may want to include this disclaimer: ‘The views expressed on this [blog; website] are my own and do not reflect the views of my employer.”

(Microsoft): “As a general rule, Microsoft does not review, edit, censor, or, obviously, endorse individual posts. You should ‘be smart’ and, as an employee of the company, you should not only think about how your blog reflects on you as an individual, but also about how your blog affects Microsoft as a whole.”

Concerns go well beyond defining proper behavior and move into legal areas. FINRA, the successor to the National Association of Securities Dealers Inc., stresses that social media postings can violate industry rules about promoting investments and soliciting customers. FINRA says securities firms should take steps to be sure that employees using social media sites for business are “appropriately supervised” and “do not present undue risks to investors.”

The Social Media Business Council, a group of large companies that explore social media issues, posts a free “Disclosure Best Practices Toolkit” online suggesting checklists to help companies and employees “learn the appropriate and transparent ways to interact with blogs, bloggers, and the people who interact with them.”

It makes recommendations on how to deal with bloggers, on how employees should handle personal and unofficial blogging, on how to be transparent in providing rewards or incentives to bloggers, on best practices for third parties acting on behalf of a company, and on best practices for “artistic/entertainment situations where temporarily obscuring the sponsor of a site is necessary and appropriate.” For instance, it is okay to use a pretend blog where someone writes that they may have discovered aliens in their house to promote a science fiction movie. But it is not okay to create “a fake customer blog where the ‘author’ writes: ‘I’d love to go see this movie.’ “

This is the first of a two-part series.   The second part is available here.

James Hyatt, a retired reporter and editor for The Wall Street Journal, has been writing about business ethics and social responsibility issues since 2005.

The report from the World Business Council for Business Development (WBCSD) - Vision 2050: The New Agenda for Business – calls on businesses around the world to “develop strategies that would enable a global population of some 9 billion people to live well within the resources of the planet by 2050.”

A group of twenty-nine companies - led by Alcoa, PricewaterhouseCoopers, Storebrand and Syngenta – helped develop the report, which focuses on “the roles that business must play over the next few decades to enable society to move toward being sustainable.”

Alcoa Executive Vice President and Chief Technology Officer Dr. Mohammad A. Zaidi, who co-chaired the 18-month project, said: “The world already has the knowledge, science, technologies, skills and financial resources needed to achieve Vision 2050. However, concerted global action in the next decade will be required to bring these capabilities and resources together, putting the world on the path to sustainability.”

The World Business Council for Sustainable Development (WBCSD) is a CEO-led, global association of some 200 companies dealing exclusively with business and sustainable development. Members are drawn from more than 36 countries and 22 major industrial sectors.

The Vision 2050 report identifies a “critical pathway” that includes:

• Addressing the development needs of billions of people, enabling education and economic empowerment, particularly of women, and developing radically more eco-efficient solutions, lifestyles and behavior;
• Incorporating the cost of externalities, starting with carbon, ecosystem services and water;
• Doubling of agricultural output without increasing the amount of land or water used;
• Halting deforestation and increasing yields from planted forests;
• Halving carbon emissions worldwide (based on 2005 levels) by 2050, with greenhouse gas emissions peaking around 2020 through a shift to low-carbon energy systems and highly improved demand-side energy efficiency;
• Providing universal access to low carbon mobility; and
• Delivering a four-to-tenfold improvement in the use of resources and materials.

"Making these changes – and more – will enable us to consume just over one planet’s worth of ecological resources in 2050, as opposed to the 2.3 planets we will be using if we continue on the business-as-usual path we are on today,” the report says.

Vision 2050 suggests that the “transformation ahead” represents “vast opportunities” in a broad range of business segments as the global challenges of growth, urbanization, scarcity and environmental change become “the key strategic drivers” for business in the coming decade.

In natural resources, health and education alone, the broad order of magnitude of some of these could be around US$ 0.5-1.5 trillion per annum in 2020, rising to between US$ 3-10 trillion per annum in 2050 at today’s prices, which is around 1.5-4.5% of world GDP in 2050, according to the report.

WBCSD said project member companies on Vision 2050 were Accenture, Alcoa, Allianz, ArcelorMittal, The Boeing Company, Duke Energy Corporation, E.ON, Eskom, Evonik Industries, FALCK Group, Fortum Corporation, GDF SUEZ, GrupoNueva, Holcim, Infosys Technologies, Osaka Gas Co., PricewaterhouseCoopers, The Procter & Gamble Company, Rio Tinto, Royal Philips Electronics, Sony Corporation, Storebrand, Syngent  International, The Tokyo Electric Power Company, Toyota Motor Corporation, Umicore, Vattenfall, Volkswagen and Weyerhaeuser Company.

The Vision 2050 report can be downloaded here.