the board has sufficient expertise to fulfill its oversight obligations. The two ways a board can address a gap are first, to recruit a new member and second, to consider hiring an external expert as an advisor. I am seeing both in the governance world right now. As to how a board oversees the fulfillment of the ESG strategy, the question has arisen whether a board should create a separate oversight committee. That certainly can make sense if a board is large and is a huge global public company; the concern becomes that the board does not have sufficient room on its quarterly agenda to grapple with ESG. In many settings, it has become a best governance practice to delegate to a board committee certain oversight responsibilities. For example, audit committees historically have also taken oversight responsibility for the organization’s enterprise risk management program, including whether the process is being handled properly and whether the risks are being effectively mitigated. Similarly, in healthcare and financial services, there is a now well-established best practice of forming a compliance
committee, to ensure that the board’s oversight of the compliance and ethics program is robust. In the same vein, some boards are establishing ESG oversight committees. My own view is that because ESG is so interdisciplinary and because it’s critical that the entire board fully understand the management team’s strategy, you’re often better advised to not delegate the oversight responsibility to a board committee. But if a board decides to form an oversight committee, it’s critical—because ESG includes risks and strategic opportunities—to ensure robust communication between the committee chair and the board so that information isn’t inappropriately siloed. It isn’t acceptable for a director who is not on the oversight committee to not fully understand what the organization is doing. Why does the board need to be surgical in its approach to ESG? Is it a question of compliance with regulations? Fulfillment of stakeholder expectations? I would not characterize it as “surgical.” I think the better term is that the board must be “fully informed,” both factually and legally and from a regulatory perspective, as well as highly engaged, but without inappropriately performing management functions. Before ESG became such a critical area of governance focus, boards typically were better versed in one or two of the pillars, but not all three. Now, because of the lens through which these issues are being monitored and analyzed, all the major thought leaders in the governance field are doing everything they can to educate directors of private companies, public companies, and nonprofit organizations, so that they have a fundamental understanding of what it all means, and how best to address it in the context of their organization’s realities. What goes into a board self-assessment program and how can it be used more effectively or efficiently? That’s something I feel pretty strongly about. To set the table for that discussion, best practices in board selfassessments have varied dramatically over the past 25
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MARCH • APRIL 2022
