It can be easy for boards to become complacent. We explore how our traditional skill sets of financial literacy and commercial acumen have served us well, but are they enough to really tackle the fast-paced changes in technology, global economics, social norms and stakeholder expectations that we are now seeing?
Measures of success are historically found in the financial statements, accompanied by board and executive statements that discuss the challenges and opportunities of the past reporting period. We get comfortable in the realm of things we understand, and can measure our success in terms of stability and consistency.
But great things don’t always come from staying in comfort zones.
Are the individual skills we once valued in boards and directors, going to remain relevant to future business models?
It is important for boards of today to consider what the board of tomorrow will look like. Individual skills need to keep pace and align with the external environment. For example, technology is changing rapidly – do we understand the impacts of this on customer behaviour, or operational efficiency and effectiveness, on how we transact with suppliers?
Managing through change is the job of the executive team, but it is the role of the board to set strategic direction – based on continual review and renewal of new information. This requires boards to anticipate future changes and understand the risks and opportunities they present to the organisation. The board must constantly ask itself questions about what their business needs, where is it heading and how it will get there. Engaging with management, rather than simply reviewing their performance in implementing strategy is an important undertaking of any board.
Remaining relevant can be tough. It requires reading between the lines on complex issues, strategising, exploring and testing long held beliefs as well as navigating current economic, political and social trends. Boards need to understand if they are playing catch up or leapfrogging their competitors with respect to creating value in a world where value is measured differently to how it was in the past.
Financial performance is still an important metric, however non-financial performance is increasingly topical. Social and environmental performance, ethical conduct, cyber security are just a few examples of the types of issues that arise. The rate at which these can impact a business from a multitude of angles (i.e. changing regulations, stakeholder activism, supplier behaviours, natural disasters etc.) is fast and there is not always time to respond before the reputational and financial impacts are felt.
Boards must constantly challenge themselves, bringing new ideas and views to the board room. They need to accept that they won’t always have the answers or the right skills, but that they have the willingness to find them in order to remain relevant. It is a strong board that admits what they don’t know.
Relevance is not just a collective issue/responsibility. It is also important to ask ourselves “How relevant are the skills that I as an individual bring to the board?” Self-awareness is an important skill of directors, one that isn’t always top of mind. Individuals need to be aware of their own skills and behaviours and how they contribute to effective board discussion and corporate governance. Remaining relevant requires a dedication to learning and evolving, to understanding the needs of stakeholders and the needs of the business. This takes not only time and effort, but a commitment to constantly questioning our own value to the business. This is not always easy, but it is critical if directors are to truly fulfil their fiduciary and broader duties.
The board of tomorrow needs to be agile. It needs to be able to adapt to changing stakeholder moods, expectations and demands for greater transparency. To stay relevant, future boards will need to be able to change composition depending on the issue, disruption or opportunity presenting itself – and these are likely to change rapidly. The velocity of change is increasing. Boards and directors who add value will:
In such a dynamic environment, other more mechanical – and well established – governance considerations will come under the spotlight. For example, the velocity of change in business is likely to be at odds with the board renewal cycle and the average 9-year tenure of a board director. Board renewal and turnover may be required more often so that the relevant skills, knowledge, experience and behavioural norms are in place. Board composition will need to be constantly reviewed – and accurately assessed - without self-interest. The interests of the organisation are paramount.
In that context, continuous board education is critical. Whether it be from external sources or time spent either together as a board on intensive, structured and educational field trips, with management, in the business. The ability to acquire better knowledge as a group, can be invaluable in developing the right strategic direction. Continuous learning and new knowledge are a must for better decision making and better governance.