Today, unprecedented times have become the norm leaving boards and executive teams constantly facing situations where a playbook simply cannot exist. Expectations from stakeholders are increasing, as are the number of significant challenges with which boards are contending including the effects of a global pandemic, severe weather events, social and political unrest, supply chain upheaval, cyber-attacks, talent shifts, inflation and economic volatility, and the war in Ukraine, to name a few. As the complexity and volume of these challenges compound, business leaders are in need of more thoughtful guidance than ever before. And every great board director knows that his or her job is to bring the right level of oversight, insight and foresight to the table, but what does that look like in the current environment?
The boards of tomorrow are the ones that can adapt proactively and with agility. Doing so requires that boards operate differently, in a way that is commensurate with the needs of business today. The best boards are not falling back to pre-pandemic practices; rather, they are designing forward-looking practices to increase their effectiveness and better reflect the dynamics of the businesses they oversee.
Adaptability Over Tradition
Being on a board is no longer a part-time, pseudo-retirement gig and involves far more than attendance at quarterly board meetings. Outside of meetings, directors need to stay current on and keep abreast of issues and topics relevant to their role as corporate stewards in an ever-changing context. It truly is a full-time job to adequately prepare and execute your duties as a director to the extent now expected.
While boards have always had a fiduciary duty to their shareholders, directors are now accountable to a far broader set of stakeholders including, customers, employees, regulators and the community, not to mention that CEOs and management teams need and expect more from their boards than ever before.
Board work is highly contextual, and governance must evolve to match the needs, feeds and speed of the business itself. As the company grows and evolves, so too does the type of experience needed from its board. Public boards have clearly defined mandates when it comes to regulation and compliance and their governance requirements are usually clear and well understood.
Private boards, on the other hand, have a higher degree of variability, often reflective of the age and stage of the company, the desires and experience of management teams, and the makeup of the current board, which typically comprises venture investors. As the company scales, the skills required of the board change, and what matters most is proactively ensuring you have the skills and experience needed for the next chapter of the company’s journey, along with independent directors who ideally have “seen the movie before” and can help the company navigate the opportunities and pitfalls that lie ahead.
Boards Fit for a Digital World
Prior to the pandemic, boards were generally operating in a manner not dissimilar to thirty years ago. As companies transformed and accelerated their digital-first strategies in response to the pandemic, the pressing need for governance to adapt to the needs of these 21st century businesses became clear. Now, with a few key learnings about all things hybrid under our belt, there is an opportunity to rethink how boards operate and what parts of the role can be undertaken virtually, saving precious in-person time for strategic and critical topics.
For example, can routine committee-level requirements be completed via Zoom before in-person board meetings? One study found that, while just 5% of board meetings were held virtually before the pandemic, that number spiked to 95% as the effects of COVID-19 wore on and that close to half of future meetings will continue to be conducted virtually. The ability to meet virtually also allows for more timely engagement with the board in between quarterly meetings.
While current tools may allow us to be more effective in how we do the job, looking ahead, with the advent of AI and the next generation of “collaborative” technology even more of the role can be automated or completed asynchronously and virtually leaving more time and space for the very best of creative thinking and relationship building that happens when you collaborate in person.
The Case for Better Content
The pandemic also surfaced the need for quality board material and board preparation because we lost out on so much of the ‘between the lines’ insight one gets when in-person. The board operates at the level management teams take them to, and, unfortunately, a lot of board content misses the mark. Too often content is at the wrong ‘altitude’ for a board audience, does not provide adequate context or fails to recalibrate the board around a particular topic (for example, anchoring back to the last time you discussed the topic, and where you left off).
In a recent NACD survey, 59% of respondents cited quality input from the management team as being the leading driver of exceptional board performance.1 If a management team wants a board to lean in and advise, the better the inputs, the better the outputs. Reed Hastings, the former CEO of Netflix, adopted an approach of full transparency in an effort to close the “information gap” between management and the board. Informing and educating the board effectively put them in a position so that when he wanted to make disruptive moves, the board fully understood the context and the market and was ready to back him.
One board on which I served took the concept of a ‘pre-read’ to an entirely new level, and in addition to the traditional deck, included short video recordings from the CEO and management team members with a ‘voiceover’ accompanying certain materials. This voiceover appeared anywhere the executive team wanted to point out key issues and drew specific attention to the aspects of the presentation where the board’s input was of particular importance. The approach was effective because not only did all the board members watch the videos – after all, they could tell if we didn’t (!) – but the videos provided far better context for the material and optimized both preparation time on the part of the directors and the discussion time during the meeting itself. More generally, this example highlights the importance of channeling your board with respect to where you want them to add value, otherwise, they’ll end up “adding value” in areas of less importance to the organization.
Same Team Different Positions
The most trusted (and valuable) board members can be counted on for unvarnished opinions and sound judgment, during and beyond regular board meetings. For CEOs, board meetings are opportunities to get some of the best and most informed minds around your table tackling the questions and topics most critical to how you operate and succeed.
Smart CEOs leverage the board’s expertise and take advantage of the fact that they’re not there every day. We’re on the same team after all, however, we play different positions and the best CEOs (and directors) understand that difference and take full advantage of each member’s unique and varying perspectives. Board members are operating at a different altitude, have a more objective perspective (or should!) and are hearing and seeing things the CEO and management team aren’t. The best CEOs use their boards to plug into these broad information flows and access diverse networks and sources of data, which they then use to their advantage.
Two-way communication is a priority for the highest performing boards. They recognize that as uncomfortable as feedback can be, the responsibility of a board chair is to parcel up valuable insights and relay them back to the CEO in a way that is constructive and helpful, then share the CEO’s reaction and thoughts back to the board to close the loop and keep everybody aligned. When it’s done artfully, this reinforcing loop can help build the right culture between the parties – a collaborative, constructive and transparent one.
There are also other novel ways to further leverage your board. The board can be made visible at strategic points to key stakeholders and be amplifiers of the CEO’s priorities and messages. For example:
- As part of a Black History Month celebration, I participated alongside two other board members in an employee event. By demonstrating a board presence and participation on the topic, the employees saw that the company’s emphasis on DE&I came from the top and was indeed a board priority.
- Board and/or committee chairs can proactively meet with your largest institutional shareholders outside of proxy season. By listening to their priorities and sharing yours, particularly on hot topics such as ESG or compensation, you’re building relationships and mutual understanding before it’s needed.
Board members can join in select client engagements, including accounts in industries where board members have domain expertise. While board members might not participate actively in these discussions, nevertheless, their presence can serve as a proxy for the CEO and reflects the importance of the relationship to the customer.
Composition and Continuous Improvement
Board composition varies by industry and by the age, stage and circumstances of the business. The board has to be composed of directors who know how to take the company to the next level and the skills matrix of the board members must reflect those needs.
To solve for these changing needs, the most effective boards are not afraid of a refresh and understand their importance in a world where the half-life of all of our skills is getting shorter (imagine how outdated digital marketing knowledge of just a decade ago is already). A survey from IBM found the half-life for technical skills is just 2.5 years.2 Boards need a lot more than directors who have financial expertise (traditionally, the most-valued asset on boards) and more than just digital experts (the modern most-valued asset on boards). Many of these skills are table stakes at this stage. Moreover, expertise cannot be concentrated in or delegated to a single director. For example, as the SEC is ramping up oversight requirements around cybersecurity, it’s not enough to bring on a cybersecurity expert. Every director has responsibility for this key issue, and the board needs to source its expertise from a variety of people and places, not just look to a single director.
With unprecedented ambiguity in today’s business environment, it doesn’t help if everyone on your team is looking at the battlefield through the same set of binoculars. Diversity of thought is how you win, and the best boards are ones with a wide range of voices, experiences, predispositions and skills. And we’re getting closer – in December 2022, a record 32% of board seats of S&P 500 companies were filled by women and 72% of incoming board directors were from historically underrepresented groups.3 While diverse boards can be harder to manage (the really good ones may never reach consensus), the goal is to have a richer discussion with less group-think and a board that is ultimately raising the ceiling on the organization’s thinking and decision-making capabilities. All board members don’t have to agree, but they must have a good mechanism to be candid, collegial and communicative, which is derived from a healthy board culture.
Solving for diversity on the board, including certain skillsets, means many boards have had to compromise on other variables, including taking on first-time directors. According to a report from Heidrick & Struggles, 43% of public board appointments were filled with first-time directors in 2021.4 To support these new directors (and experienced ones, too), boards need a robust onboarding plan and must be committed to ongoing education. The most effective boards purposefully design onboarding, education and mentorship to empower new directors to immediately contribute. Instead of the traditional binder with previous meeting minutes and proxy statements, many boards now conduct personalized and tailored onboarding programs, including meetings with key executives, site visits and product demos.
Strong boards share an expectation that directors will be committed to ongoing learning. To get the best out of boards, the members themselves need to continuously be getting better. Management teams and chairs need to plan out how they will continue to upskill the board, setting aside the appropriate time and budget.
Foresight (Strategic Value)
Particularly in turbulent times, against a challenging macro environment, boards need to have clear points of view on where the industry is going. Dedicated directors keep careful track of shifts in technology, consumer preferences, competitors and threats. The ability to look ahead is crucial. And this means an ability to gather future-looking data to inform strategy, investment, and M&A. That shift from insight to foresight enables your organization to better place bets on how to capitalize on trends and be proactive rather than reactive in the face of disruption.
We saw from a recent Diligent Institute survey that many boards are thinking about cybersecurity, ESG, data security and surveillance, and workforce and talent as key issues for the coming years.5 Another pertinent topic, in my view, which was also recently cited as a crucial issue in an MIT Technology Review report, is the practice of responsible tech and more specifically, the governance of artificial intelligence.6 In the future, boards will be expected to ensure robust governance, controls and oversight over AI, which is proliferating at an unprecedented pace. AI in particular, is a transformational technology with far reaching implications – comprised of both upside and risk. Governance thereof will become a major board issue, yet it’s one for which most boards are woefully ill-equipped.7 Boards will have a responsibility to manage implications for data privacy, prevent inherent bias in data sets and models, and ensure transparency of algorithms and the “explainability” of their output. Executive teams and boards will have to diligently monitor these powerful and transformative capabilities, including AI, to ensure that they are being used to add value in a manner that adheres to a strict moral compass and remains compliant with ever-evolving regulatory requirements in multiple jurisdictions.
From an ESG perspective, many boards are figuring out what strategies align with their core business and how to most effectively communicate and report on progress in key areas. Directors want to be responsive to shareholder interests and pressures, but what really matters is that the responses are substantive, thoughtful and long-term, rather than reactionary. The best ESG strategies are aligned with the business the company is actually in. While ESG has become a lightning rod for criticism during the economic slowdown, we need continued focus on ESG strategies to produce impactful and positive long-term results.
Changing Expectations, Better Results
Today, the role of a director is more time consuming and more difficult than it’s ever been, but it’s also more exciting and influential – especially against the backdrop of the ever-increasing speed of innovation and disruptive changes in every business sector.
The difference between good and great boards is that a great board is an invaluable strategic asset. They are a uniquely selected group of engaged minds who bring exceptional wisdom and perspectives and are willing to help the company win. You’ve got the wrong board if they’re not that asset.
In the next decade, we will continue to see boards shift to become more diverse, incorporating more skillsets, backgrounds and life stages than ever before. They’ll also be called on to guide management teams on a wide range of challenges, while answering to a broader set of stakeholders and navigating a myriad of changing technologies. The boards that can stay ahead, think proactively and make informed, bold and decisive moves will be those at the helm of this century’s defining and winning enterprises.
NACD. 2022 NACD Public Company Board practices and oversight survey. (2022, June 21). Retrieved from https://www.nacdonline.org/insights/publications.cfm?ItemNumber=73754
Skills transformation for the 2021 workplace. IBM Training and Skills Blog. (2020, December 7). Retrieved from https://www.ibm.com/blogs/ibm-training/skills-transformation-2021-workplace/
Spencer Stuart. 2022 S&P 500 board diversity snapshot. (2022, June). Retrieved from https://www.spencerstuart.com/research-and-insight/sp-500-board-diversity-snapshot
Glazer, E. Companies look for ways to bring new directors up to speed quickly. The Wall Street Journal. (2022, November 9). Retrieved from https://www.wsj.com/articles/new-directors-onboarding-companies-11667503983
Corporate Board Member. What Directors Think – 2023 Report. (2023, February 13). Retrieved from https://boardmember.com/whatdirectorsthink-2023-report/
MIT Technology Review Insights. The State of Responsible Technology. MIT Technology Review. (2023, January 27). Retrieved from https://www.technologyreview.com/2023/01/11/1066303/the-state-of-responsible-technology/
Gressel, A., Gesser, A., Coad, L., & Regner, W. AI oversight is becoming a board issue. The Harvard Law School Forum on Corporate Governance. (2022, April 26). Retrieved from https://corpgov.law.harvard.edu/2022/04/26/ai-oversight-is-becoming-a-board-issue/
The views and opinions expressed herein are solely those of the individual authors and do not necessarily represent those of The Consello Group. Consello is not responsible for and has not verified for accuracy any of the information contained herein. Any discussion of general market activity, industry or sector trends, or other broad-based economic, market, political or regulatory conditions should not be construed as research or advice and should not be relied upon. In addition, nothing in these materials constitutes a guarantee, projection or prediction of future events or results.