Our businesses are operating in a time of rapid economic and technological change. Disruption is a prevailing force — one to which boards must be attentive. The Internet of Things, urbanization, advanced technology, synthetic currency, decarbonization and other environmental, social and governance issues are the signs of disruption in our times. Whether most people realize it or not, these are the issues that are changing how we live and work, and they’re also changing the fabric of our lives.
Past and current processes and structures that got companies off the ground are different than those that they will need to ensure profitability and sustainability today and in the near future. While many board directors work to improve their governance skills, the pace of the market is making it difficult to keep up. Today’s boards need different skills, talents and tools than ever before. Board composition must change to keep up with the needs of the times.
Strong Governance Is the Key to Addressing Current-Day Disruptors
Strong governance is a mighty force of its own. It lays the foundation for boards and managers to implement the activities of the firm that lead to success. When strong governance is apparent, it sends a solid message to the shareholders and stakeholders that their voice is being heard in the boardroom.
Governance is based on principles that have a foundation. Certain governance principles like ethics, honesty, integrity, transparency and accountability will continue to be part of the governance foundation. At the same time, it’s a mistake to think that governance should be static. The principles of governance change slowly. They can and should be continually improved and adapted to meet the needs of the marketplace and the current financial landscape. The risk of boards that fail to understand the importance of the evolution of governance is that they may face financial failure or reputational harm.
Strategic Board Renewal Based on the Evolution of Governance
Being progressive requires board directors to be forward-thinking. Board directors who do the same things they’ve always done will surely get the same results they’ve always gotten. That just doesn’t work in today’s corporate world.
Corporations can no longer thrive in environments in which the board focuses so much on compliance and dedicates so little time to innovation. Boards need to be more active in such activities as creating strategies, developing the board and management talent, and increasing investor engagement. They also need to stay on top of cybersecurity issues and other disruptors, which need to be part of forward-looking governance. Forward-thinking board directors know the importance of focusing on the opportunities of the future and focusing on the future of risk. They must take a proactive approach and consider modern governance, or they won’t be prepared for the future and they’ll be left behind. These are the modern issues that improve the probability of success.
Successful companies adapt quickly to the speed of change. Governance practices and priorities need to match that speed, or companies risk becoming irrelevant.
If you look at companies that are thriving despite today’s challenges, they stand out because they’re proactive in the area of strategic board renewal. They embrace modern governance and they’re not stuck in the past.
What Do Modern, Progressive Boards Look Like?
Modern boards are diverse, proactive and they have a designated culture that resonates from the top.
While the issue of diversity is prevalent in discussions about board governance, many boards haven’t worked hard enough to bring a wider variety of perspectives into the boardroom. Business and leadership experience, age, gender, ethnicity and other demographics help to round out boardrooms. Boards that have antiquated processes, traditions and thinking become viable targets for activist investors and they will have difficulty staying ahead of the competition.
While it’s helpful to make changes in age limits and board tenure, it’s also essential for boards to rely on robust board evaluations and peer reviews to help perfect their craft. Industry knowledge, strategic insight and preventing groupthink are essential to spotting opportunities and avoiding risk.
Modern boards operate differently than boards of the past. The current financial landscape requires them to make decisions faster. They also need to make more use of ad hoc committees, special task forces and advisory boards. Today’s boards need to be less reactive and to take greater initiative. Strategic planning needs to be integrated with risk management using scenario development to better understand how risks play out. Of course, it’s impossible to predict the future exactly, but such activities are sure to create new insights and mitigate unwelcome surprises.
Culture drives a company’s values. It’s the board’s responsibility to define it, oversee it, learn how to measure it and recognize the impact of the corporate culture. It’s important for corporate leaders to set the tone for the acceptance of employee behavior. This should include zero tolerance for toxic attitudes and boards need to own that and not tolerate them. Employees will get a clear message from corporations that promote messages on attention to values and accountability.
In addition to the board’s commitment to promoting their intended culture, the board chair and the CEO serve as links to management and the board to join in promoting the company’s culture. It’s essential that the board and executives be aligned and nonadversarial on this issue.
Modern leadership requires board directors to have a sense of curiosity and they need to ask better questions. It also requires them to be insightful and to be willing to remove board directors who are underperforming.
Typically, the board chair is responsible for taking the lead on reforming governance skills and for getting the board and management on the same page. A skilled board chair will bring out the board’s best possible performance.
Digital Tools Also Help to Drive Strategic Board Renewal
Diligent Corporation developed software solutions to help boards with governance processes. In light of board performance, Diligent developed a board assessment tool to help boards easily manage and analyze their boards so they can create actionable insights that improve board performance and effectiveness. With this information, boards can then use the Nom Gov tool, which offers them a large, global database of potential board and executive profiles to compose a high-performing board. Overall, strategic board renewal requires having a commitment to the present and the future of industry, identifying the most appropriate corporate culture and taking a modern governance approach to business.
How to Drive Strategic Board Renewal
02/05/2020
5 min read