Why Board Members Need to Understand ESG

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On Tuesday morning, January 16, Laurence Fink—founder and CEO of the investment firm BlackRock—sent an important letter to the CEOs of the world’s largest companies. In that letter, he explained, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” BlackRock is the largest investor in the world—thereby giving Fink’s voice a great deal of power and influence. But what exactly do his statements mean?

Put simply, Fink’s letter advocates for Environmental, Social and Governance criteria, which is commonly referred to as ESG. Investopedia defines ESG as “a set of standards for a company’s operations that socially conscious investors use to screen investments.” The environmental element examines how a company is handling their impact on the natural environment. The social portion of the criteria scrutinizes how the company handles its relationships—with employees, partners, customers, its local communities, and more. The governance component analyzes exactly what you’d expect: executive leadership as well as pay, auditing processes, shareholders rights, etc.
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What Is Directors and Officers (D&O) Insurance?

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Insurance is pivotal to the existence of any private organization. Companies often have to purchase a variety of coverage options to ensure their business is completely safeguarded: property insurance, liability protection, loss control assurance, and more. D&O insurance is one more type of specialty coverage that companies with boards of directors should consider purchasing.

According to Investopedia, “Directors and officers (D&0) liability insurance is insurance coverage intended to protect individuals from personal losses if they are sued as a result of serving as a director or an officer of a business or other type of organization. It can also cover the legal fees and other costs the organization may incur as a result of such a suit.”
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What to Do When Your Board Gets Bored

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At times, board service can be exciting, engaging, and groundbreaking. Board members might have the opportunity to lead the revitalization of a struggling company or discover new avenues for growth. Board service will occasionally feel tedious or rote, though. The truth is that being on a board involves some repetitive practices, but that doesn’t mean that directors’ eyes have to glaze over during meetings.

So how can you keep things fresh and focused on a strategic future? Here are some of our suggestions:

Don’t let the agenda become an afterthought.

We’ve shared our thoughts on creating better board agendas here, but this topic is important when it comes to keeping board meetings fresh, too. The agenda-building process should be interactive, and board members need to think critically about how to structure them from month to month. Rather than adopting a system that just rolls over after every meeting, challenge your board to create agendas that will spark new conversations.
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Best Websites for Board-Related Education

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Let’s face it, these days the board landscape is shifting and evolving at lightning speed. It can be difficult to stay up-to-date on all the latest trends in corporate governance. At Directorpoint, we do our best to help keep you knowledgeable with our weekly newsletter, but where should you go looking for information when questions arise? We’ve compiled this helpful guide to tell you about some of the most useful board resource websites.

  1. The National Association for Corporate Directors (NACD)

NACD has been providing directors with news and educational information for more than 40 years. Although it takes a paid membership to access all of their materials, they also share articles and information frequently via social media. Their monthly magazine, Directorship, is always chock-full of valuable guidance and news-related activity in the board sphere.
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The First-Time Board Member Checklist

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Board membership is an adventure in leadership unlike any other. Individuals who are new to the role of director will be challenged in new and unique ways. In order to meet this challenge head-on, they’ll need to continually develop their expertise while adjusting to a system of checks and balances that is meant to help bring the best decisions forward.

An experienced CEO or CFO may jump into a first-time board position with a lot of confidence, and that’s a good thing! But they also need to understand the ways in which their role will differ from the internal positions they’ve held in the past. Here are some tips for making a smooth transition from business leader to board member extraordinaire.
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What Does Good Governance Look Like?

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It’s easy to talk about strengthening your board of directors, but how do you know when you’ve reached a high-functioning level of corporate governance? In this day and age, building and maintaining a successful board means checking off many different boxes. As the role of the corporate director continues to expand and technology keeps leaping forward, board members should take the time to reflect on their impact as individuals and as a group. Here are some signs that your board is thriving:

  1. Directors have a firm understanding of their responsibilities.

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How-to Build the Bridge Between Boards & CEOs

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Board members and CEOs may serve different purposes in an organization, but with the right working relationship, they can help take a company to new heights. Creating a strong bond between these two entities takes time, focus, and mutual respect, but once it’s been created, the connection can be the difference between a company that just gets by and one that excels.

When it comes to getting the most out of the board to CEO relationship, here are our suggestions:

  1. CEOs should interact with board members individually and as a group.

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Managing a Board With Vacant Seats

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Inevitably, the time will come when your board has one or more empty seats to fill. For boards that are already small in number, having vacancies can cause some strain, but don’t panic; unless your bylaws mandate a quorum that you cannot meet, your board should be able to continue operating normally until the seats are filled. However, there are some stressors you may encounter along the way. Here are some helpful tips for confronting them.

1. An even number of directors creates a tie vote.

Perhaps, your board typically has 10 members plus a board chairperson for tie-breaking votes. What happens if you’re down one member, and the vote splits? Obviously, if your bylaws dictate a procedure for a tie vote, be sure to follow it. If you have no process already in place, your best option is to revisit discussion on the issue at hand and vote again. If the vote comes out the same, consider enlisting the opinion of an outside expert. This individual would not cast a vote, but they could bring more information to the table, which could help shift the overall vote counts.
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4 Strategies for Dealing with Peer Reviews in the Boardroom

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Many organizations view board member peer reviews as one of the most relevant ways to gauge effectiveness and to work to change any negative behaviors occurring in the boardroom.

Peer reviews can, however, be very tricky evaluations to administer since they carry a strong element of critique. While yearly board evaluations are required for all NYSE-listed companies, peer reviews are not mandatory.

Before choosing to implement peer reviews, board members should discuss the potential value that they would bring to their processes. Then, the chairman can make the decision to implement peer reviews as needed.

If your board does feel that peer reviews will provide significant boardroom insight, here are four suggestions for how to go about administering and utilizing them.
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5 Questions Boards Should Ask After an Audit

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External audits usually provide companies with a fresh perspective on their financial health and reporting practices. It’s important that your board, or more specifically, that your Audit Committee asks the right questions in order to make the most out of the findings you receive. Here are some of our suggestions for queries we think you should address with your auditor or auditing firm:

1. Did you have any difficulty interacting with employees or accessing information while collecting data?

It’s important that companies establish a culture of forthcoming reporting. If a member of your internal team was not cooperative with the auditor, or if records were extremely hard to locate, you may have some internal issues to address. Additionally, if auditors are unable to obtain thorough records, it could lead to an incomplete report.
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