February 2003

Surveys Find Corporations Increasing Transparency, Boards Becoming More Assertive

According to a Barometer survey conducted by Pricewaterhouse-Coopers in late 2002, senior executives in the United States and Europe rank customers and employees as their most important stakeholders, but say their corporate reporting is light on information relevant to stakeholders’ needs. Although many respondents say their company is already involved in or is planning increased transparency (see the Exhibit), the additional information is targeted primarily to shareholders and analysts, whose needs for information were perceived as already well met.

In addition, survey respondents said analysts and activist groups have more attention paid to them than is warranted by their importance to business strategy.

Increased Transparency

“In today's turbulent markets, corporate executives are providing more information to investors and the analysts who influence investment decisions, in hopes of gaining a competitive advantage,” noted Robert G. Eccles, senior fellow for PricewaterhouseCoopers and coauthor with Samuel A. DePiazza, Jr., of Building Public Trust: The Future of Corporate Reporting (see “Book Review” on page 19). “However, it is a big mistake to think that the information needs of customers and employees can be ignored. Those companies that realize this as well will be the ones that gain a competitive advantage that is sustainable over the long term.”

Compared to their peers, companies implementing or planning increased transparency are larger in revenues. U.S.-based businesses have a 21% size advantage; their European counterparts, 40%.

In addition, a larger number of those increasing transparency also reported planning major new investments of capital during the next 12 months: in the United States, 47%, eight points higher; in Europe, 36%, six points higher.

Boards Expected to Be More Assertive

Another PricewaterhouseCoopers Barometer survey found that many corporations in the United States and Europe have made or are planning changes in audit committees.

According to the survey, 75% of executives believe their board will be more assertive. Respondents said their board will have more input in the following areas (ranked in order of frequency):

Executives also reported that their companies are planning the following changes in their audit committee:

“Even before the new legal, regulatory, and listing requirements were introduced,” according to Richard Steinberg, U.S. corporate governance leader for PricewaterhouseCoopers, “the well-publicized scandals elevated both the importance and visibility of the audit committee. Liability and performance concerns among directors have already increased boards’ attention to audit committee composition and conduct, and the new rules will clearly further increase this attention.

“Boards in the United States meet on average five times a year, about half as often as in Western Europe. Given the number of corporate scandals that have come to light in the United States, it seems appropriate that boards of U.S. companies have moved toward more frequent and longer meetings as a means of fulfilling their responsibilities to shareholders,” Steinberg added.

Overall, more than 90% of respondents gave their board good marks for knowledge of the key aspects of the company’s business. A majority of U.S. respondents, however, rated their board as very knowledgeable in only three areas: strategic direction, financial challenges facing the company, and overall performance. In Europe, a majority said their board was very knowledgeable about the company's industry as well.

Respondents said that boards added value in the following areas (ranked in order of frequency):

Nearly three-fifths of U.S. respondents (59%) and more than half in Europe (51%) rated their board’s advice and counsel to management during times of corporate crisis or economic distress as very or extremely helpful. But 10% of U.S. respondents and 8% in Europe said the board was not particularly helpful in such situations.

According to Steinberg, at emerging companies in particular, if the CEO has never experienced a significant economic downturn, the board needs to determine its preparedness for that environment.

Finally, a majority of U.S. respondents (52%), and somewhat less in Europe (43%), view the executive compensation programs set by their board as very or extremely effective for motivating management.

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