Board directors might be forgiven for feeling somewhat overwhelmed by the constant flow of reports, directives, rules, regulation, checklists and best practice guidance offered up in the name of improving corporate governance. Authored, amongst others, by institutional shareholders, proxy advisers, lawyers, accountants, brokers, headhunters and regulators these may be seen as an unrelenting torrent.
So another weighty tome from the, US-centric, National Association of Corporate Directors—adding to over 20 other reports in its Blue Ribbon Commission series—might be seen as one report too many. That just could be a mistake, since this report Fit for the future: an urgent imperative for board leadership is refreshing in its approach, the thinking frames offered and the ideas it stimulates.
Against a backcloth of demographic and workplace changes (now exacerbated by Covid-19), disruptions to industries and business models, social media and investor activism, transparency, climate change, geopolitical instability and the advance of digital technology, the report identifies the need for for a new governance model for leading boards into the future.
In reality, the report is less a new governance model but more a useful remix of existing approaches made different by the priorities and emphasis. It calls for boards characterised by faster decision-making, proactive behaviours, adaptability and innovation.
It tries to summarise the quality required to lead boards into the future with just one word, fortitude. It observes that this word is “not often used in modern business parlance” but offers meaning by describing this as being a mixture of courage, strength of mind and character, boldness, perseverance and resilience. It then pointedly notes that many board leaders know what they should do to improve their boards, but lack the courage to champion and achieve change.
The report seeks to use words to shift our mindsets. Rather than focus on the common tags of chair, chairwoman, chairman, chairperson or indeed non-executive, it majors on the use of board leader to describe the person running the board and their role as being board leadership.
Building better boards
The imperative for board leadership has five “implications”, starting with engagement. It implores board leaders to drive continuous improvement through more and better quality board engagement. Although it reminds us that boards provide oversight and direction, not day-to-day management, it emphasises the need for boards to have better access to information. This, it argues, should include information sourced independently of management.
Just as many boards will likely have experienced through the pandemic, it sees a shifting balance between the roles of the executive and other board directors. While in oversight terms it emphasises the imperative for the board to “put guardrails on management’s ambitions”, it also sees a role for the board to provide encouragement to the executive to be bold and embrace change.
It falls to the board leader to drive this heightened, more continuous degree of engagement, to ensure more intense discussions, the right conversations are being conducted at the right time, the board is well informed, critical relationships maintained and boundaries respected. The board leader needs to be like the conductor of an orchestra, setting the rhythm and tone of discussions and ensuring each member plays their part to best effect.
The second implication is board renewal by maintaining a constant focus on the mix of expertise from board members, tapping diversity in all its forms and ensuring the renewal of the board aligns with the evolving strategy and risk profile. It sees the board leader as catalysing and orchestrating a transformation in how a board is composed and structured, its operation and accountability.
This leads to the third implication of a board operating model and a structure which is dynamic. This starts with board agendas which do not allocated disproportionate time to procedural and compliance matters. But at the same time recognising that meetings are just the tip of the iceberg in the board process. Board leaders must, through effective time management, within and without formal meetings. They must maintain focus on what really matters through discussions which truly challenge the thinking of management teams whose strategies may have become stuck in the past.
This is a much more hands-on approach than many board directors would be used to. The authors identified than half the boards they surveyed reported the need for better quality, rather than quantity of board information. Addressing this is an imperative to underpinning the dynamic board operating model.
Board visibility and accountability
This idea links with the fourth implication of board transparency. The authors argue that the image of an aloof and ill-informed board is dangerous. Boards should behave as if anything they say and do may become public. The board leader needs to challenge assumptions on the application of board confidentiality, about the limits of transparency and disclosure. In the view of the authors, directors need to work out how to offer visibility into the workings of the board including relationships with all stakeholders.
The last implication is accountability for individual director and board performance arguing this needs much more attention and noting that in the view of many the whole activist industry exists because public boards are often seen as inadequately equipped to meet shareholder needs.
This starts with the rigour and candour of discussions, it identifies that more debate and the expression of diverging views make for better decisions. Directors should be encouraged to speak candidly, disagree vigorously and still achieve a workable consensus.
From these five implications it identifies various strategies for board leaders. This list is long and includes forward-thinking, agility, flexibility and self-correction. The real emphasis is on fortitude and adaptability, communication skills, relationship building, unconventional thinking, humility and placing a premium on listening skills. The board leader should be a conductor ensuring more intense engagement taking place in a harmonious way where everyone is respectful of each other’s role and view.
It encourages boards to trust management teams but to always verify information provided. Boards should have the confidence to ask tough questions and drill deeper, it argues. The authors see an increasing role for real-time objective information being available to the board.
The authors encourage all boards to step back then apply a clean-sheet approach to board composition and the skill set need. This should be supplemented by refreshing the board experience through repeat training and induction for all directors; an emphasis on continuous learning.
If you can avoid becoming lost in some of the detailed recitals this report is a useful template for board leaders. In the words of the report, the future belongs to businesses that grasp the scale and scope of change, and adapt.
Barry Gamble is chair of the NED City Debates and adviser to the Non-Executive Directors Association.