War in Ukraine, soaring inflation, the economic distortions caused by the pandemic, and issues with the global supply chain have all created volatility, and are factors that are tipping many countries into recession. In fact, the Bank of England warned that the UK faces the longest recession since records began.

At this challenging time, it’s more important than ever that there’s good governance on the board. Not only does having effective governance act as a protector and an enabler to help boards navigate through uncertainty, but it provides a source of competitive advantage at a time of significant change.

However, boards need to understand that delivering effective governance is so much more than solely focusing on compliance and process-driven statutory duties, such as ensuring the business complies with company law, and makes the necessary filings, such as annual returns and financial statements. It’s about having four lines of sight, role clarity, regular board and governance reviews, an enabling culture and diversity on the board.

Enabling four lines of sight

Effective decision-making in today’s volatile world demands that the board has the ability to focus on four lines of sight: oversight, insight, foresight and hindsight.

• Oversight: Boards have a fundamental legal responsibility to provide oversight and accountability, so they must have the right processes in place to achieve this. To fulfil its fiduciary duty, the board needs to make sure that the business is appropriately stewarding the resources entrusted to it and following all legal and ethical standards.

• Insight: Effective boards understand the company, the drivers of financial performance and the organisation’s competitive advantage, plus the context of the external business environment and the marketplaces where the company sells its products and services. This insight drives a more objective and enabling assessment of performance and strategy.

• Foresight: The ability to anticipate, to see what is coming and know the future forces that will impact the competitiveness and sustainability of the business: these are critical to effective understanding of risk and the development of strategy.

• Hindsight: Effective boards can bring significant company knowledge, the hindsight to remember previous initiatives and ability to reflect on the good, bad and ugly learnings from the past.

These four lines of sight must be live in the boardroom to support successful decision making.

Ensuring role clarity on the board

Role clarity amongst directors on their responsibilities in contributing to the value creation by the board creates the foundations for good governance and an effective board. Any ambiguity and confusion over roles, particularly in a volatile world, will have a negative impact on board effectiveness and decision-making. It’s a vital role of the chair to ensure directors have absolute clarity about what their role entails and the value they need to bring to the board.

Regular board, CEO and governance reviews

When it comes to adding value, the pandemic revealed that some leaders under enormous pressure were ‘leading lights’ by spotting new opportunities for their organisation, and operating with agility and competence, while others were exposed as ‘simply light’.

For instance, there were those CEOs who recognised the importance of identifying a ‘once in a lifetime’ opportunity to transform their organisation during the crisis, to shape the business for the future to ensure it thrives. Whereas others, under the strain of the Covid emergency, closed down dialogue with the board and presented ‘oven ready’ decisions; or experienced uncertainty paralysis, delaying decisions; while others focused too much on the ‘present’ and took their eye off the future direction of the business.

This highlights the importance of boards having processes in place that ensure CEOs, and in fact all directors, are regularly reviewed—to provide an objective assessment of performance and identify development opportunities that will enable the board to be fit to lead the business to future success.

Unfortunately, during the Covid health emergency, many organisations stopped undertaking reviews of those on the board. The urgency of navigating the pandemic overwhelmed the importance of objective, regular performance reviews. Now is the time to restart them.

Those on boards derive substantial benefit from a structured and systematic performance review, at least annually, with clear accountability and follow-up to help ensure they are ‘fit for the future’ and deliver governance that is effective and creates value. Once complete, these assessments might prompt the board to consider the development needs of the CEO and individual directors, as well as highlight opportunities to improve board and individual director effectiveness to drive business success.

When it comes to evaluating CEOs and directors, it’s important to realise that boards require resilient leaders, along with a wider resilient workforce, in a world where uncertainty is the new normal. It’s worth bearing in mind that resilience is not just about the ability to bounce back from setbacks, but is the innate capacity to grow better and stronger when things don’t go to plan.

As well as reviews of directors, it’s just as important to review governance processes. This is particularly true when business failures during the global financial crash, and the more recent pandemic, have led to corporate compliance facing increased scrutiny. For the board to achieve its purpose, it’s best practice for governance reviews to take place annually.

Nurture a good culture

Those boards with good governance recognise that they are responsible as custodians of culture—keeping, protecting and nurturing the good things, the ‘assets’, in company culture. In a time of recession it’s very important, if they are not already doing so, for the board to foster a culture of agility and adaptability both on the board and throughout the organisation. This releases the potential of directors and employees to provide new ideas to help take the business forward. It also requires that boards engender a curiosity and fearlessness to inspire creativity, innovation and continuous improvement.

To accomplish this, boards must lead by example in demonstrating diversity of thought and ideas in the boardroom, as this will give confidence to the rest of the business to follow suit.

Just as importantly, the board needs to foster an open culture where bad news travels to the board faster than good, so any challenges can be resolved before they potentially become big issues. To ensure this occurs, the board must engender a culture of psychological safety to encourage employees to speak up and approach them with any bad news, and protect those that do.

Diversity on boards

It’s widely understood that diverse boards are more effective than those that aren’t diverse. Therefore, to ensure they deliver good governance and decision-making, boards need to consider whether their current composition is the right one to take the organisation forward. To do this they should look at the board through the prism of the five drivers of diversity™—demographics, skills, experience, thinking styles and circles of influence—and consider how well the current line up matches up.

It’s important to highlight that “diversity without inclusion is an illusion”. Therefore, a key task of the chair and directors must be to enable the culture on the board to be one of inclusion. Then it can gain the benefit of the different perspectives brought to decision-making by a diverse board.

With every business facing great uncertainty due to the war in Ukraine, soaring inflation and issues with the global supply chain, it’s time for boards to urgently consider these factors in order to deliver effective governance and decision-making. That’s if they are serious about their organisation not only surviving but thriving in these recessionary times. Doing so will also provide a competitive advantage during this period of great change.

John Harte is managing partner at Integrity Governance