Top Concerns for Public Company Directors: AI, ESG, and Human Capital

Economic, political, and social issues are front of mind for public company directors across the country while artificial intelligence (AI) is rising to the top of many boardroom agendas. NACD found that AI is one area where there is a considerable gap between the opportunities and the expertise necessary.

For example, 95 percent of directors surveyed in the 2023 NACD Public Company Board Practices and Oversight Survey believe that the adoption of AI will impact their businesses. Only 10 percent believe their management teams are highly proficient with AI tools and less than one third regularly discuss AI at the board level.

"Our Board Practices and Oversight Survey reveals data-driven insights into current boardroom issues facing public companies and their directors," said NACD president and CEO Peter R. Gleason. "We know that topics like AI, climate change, and human capital are top of mind for public directors but gaining a sense of the growing areas of concern, how much time boards are devoting to these areas, and what their biggest challenges are is incredibly helpful to NACD, our members, and the wider governance community."

Here are five key findings from the survey:

1. Board focus on artificial intelligence is in its early stages. As the risks and opportunities of AI technology grow, boards must plan how they will oversee this new technology domain. Seventy percent of survey respondents said the full board is responsible for tasks related to the oversight of artificial intelligence while 11 percent said most tasks fall to the technology committee.
2. Boards remain focused on environmental, social, and governance (ESG) matters but are challenged by unclear standards. The ESG landscape and focus has changed greatly in the last 12 months. With public criticism of corporate ESG practices shifting, ESG has received considerably more scrutiny from regulators, politicians, and media. Despite this, directors appear to not have wavered in their prioritization of ESG issues and seem unfazed by the recent backlash, with 62 percent of respondents continuing to believe that ESG programs create long-term value within their organizations. However, 46 percent of respondents cite the lack of uniform standards as the most challenging aspect of overseeing ESG issues.
3. Climate issues are increasingly featured in board discussions. The impact of climate-related risks on organizations is expected to increase in the coming years. Even over the past two years, 44 percent of respondents indicate that the frequency of climate change-related board discussions has increased. Though organizations are also facing evolving regulatory requirements and stakeholder expectations on climate performance, 46 percent of respondents indicate that their company now has established climate targets, and that they are on track or ahead of schedule in reaching these targets, compared to 43 percent last year.
4. As board engagement on human capital grows, more formal oversight practices are emerging. More than three years after the start of the COVID-19 pandemic, the effects, including a competitive labor market, changing worker expectations, and a growing mental health crisis, continue to persist. Though 82 percent of respondents feel their boards have the expertise to oversee human-capital risks, just 34 percent have delegated specific human capital oversight elements to relevant committees and only 52 percent have discussed human capital strategy as a recurring agenda item.
5. Board culture can be undermined by problematic individuals and group dynamics—and virtual meetings. The COVID-19 pandemic reduced the number of opportunities for directors to engage with each other outside of the formal board setting. Meanwhile, a new and increasingly diverse director class is joining boards, but boards may not reap the benefits of these new directors’ perspectives if they feel hesitant about offering their points of view. Thirty percent of survey respondents considered problematic individuals to be among the most significant barriers to sustaining an effective board culture, underlining the impact that each individual director can have. However, half of participants noted that a lack of board time spent together outside of formal meetings was a barrier. Virtual meetings may have their benefits, with 35 percent of respondents noting that they increase meeting inefficiency, though a quarter of directors indicate that the lack of in-person interactions during virtual meetings has diminished the quality of discussion (26%) or board collegiality (26%).

Using the results of the survey as a benchmark for their own companies’ practices, public company directors can bring these meaningful lessons with them to their next board meetings and beyond.

Natalie Heavren is assistant editor of Directorship magazine.