Change and challenge in the boardroom
Change and challenge in the boardroom
The measures of success within business have changed. Now, swathes of regulatory compliance, changing consumer demands, and caring for the planet are just several factors that increase the complexity of board work and dynamics. Boards today need to adapt in order to win. This article takes a brief view of the pressure points in today’s boardroom where business is more complex than it has ever been. This article by Heikki Otsolampi, MD of Alumni Finland, was first published in Boardview Magazine, a publication by the Directors Institute Finland (DIF). You can read the original publication titled Change challenging the board here.
The number and complexity of topics requiring board oversight continue to increase, making it harder to allocate adequate meeting time and attention to each. Listed companies have a ton of compliance and regulatory tasks that the board needs to do, strategic discussions often come second. An overly stretched or poorly prioritised agenda leaves too little time for a robust discussion and probing questions that would allow the business to navigate the ongoing turbulence.
Studies looking into boardroom work have a tendency to echo a general sentiment and a need for boards to re-evaluate the required time commitment to be able to perform effectively. This time commitment has to be reflected in compensation.
Pressurepoints in the boardroom
Directors who have many board positions (also known as “overboarding”) may not be able to dedicate sufficient time to the boards on which they serve, especially if one of the companies faces a crisis. Director commitments policies have become a significant component of corporate governance.
Given limited time, boards expect the members to look through the material beforehand, and the meeting is there just to formally make the decisions. Raising questions, thoughts, and issues often reflects negatively towards the board members and there are numerous NED’s that say they’ve been called “troublemakers” or “difficult” as a result of voicing their worries or questions.
On top of the time commitment, it is about increasing the focus and the visibility into the business. For the financial elements of the business, a third-party auditor provides the board with an independent view of the company’s financial situation and status. Best-in-class companies are likely to start also using systematic audits towards other crucial topics of the business, such as sustainability, leadership, technology capabilities and advancements.
“The trend for large corporations will go towards increasing the board’s objective visibility towards the company’s challenges, deliverables, and action plans, whether through third party auditors or through increased involvement in gaining information from the day-to-day business. This will allow the board to better see the large and small levers of the changing operating environment, help it make more informed decisions regarding the business, and be a better partner to the company’s executive leadership.”
Sustainability and geopolitics
Previous research by Deloitte in 2021 showed that almost a third of executives were saying that their business already felt the operational impacts of climate-related disasters, and more than a quarter were facing a scarcity of resources due to climate change. Yet a resounding boardroom response to this continues to lag. According to a study by PricewaterhouseCoopers (PwC), published 2023 on the Harvard Law School Forum on Corporate Governance, more than a third of all boards are deemed to have poor environmental, social and governance (ESG) expertise.
Doing the right thing for the planet often has to be balanced against delivering the highest return to other stakeholders and especially sharehold- ers. It comes down to delivering value in a holistic sense, value that not only reflects current market positions but also the future benefit to society. If price is the only driving force in decision making, companies are bound to choose the partners who have a tendency to cut corners.
“Achieving competitive edge by doing business globally in compliance with legal-, industry-, and company specific requirements on quality and sustainability is indeed a dynamic and resource demanding exercise.”
ESG expertise is a growing skillset in the boardroom, and non-executives with the experience necessary to steer organisations through the balance can be found, given a broad and deep network. Even with good intentions, some ESG-measurements promote suboptimisation that in the long run have no effect, or at worse, an adverse effect to what the business really wants to achieve.
Much like ESG, geopolitical insecurity and the rippling effects of it have a tendency to be hard to predict. Sudden moves by governments may impact supply chains, customer base, public image, pricing, and especially forecasting. Probably the only way for the board to prepare for various situations and mitigate risks is to work with various scenarios.
Trust and collaboration
Humanity has gotten where it is now because we have trusted one another. We have worked together and learned the ins and outs of the way we behave and thus we have been able to predict behaviour and increase trust between one another.
The days of decision making, where organisations could clearly define a “right” decision from a “wrong” decision, are pretty much over. We live in an unprecedented time where we have more phenomena that create mistrust between individuals than there are counter-phenomena creating trust. As an example, generative AI allows the creation of ultrarealistic but fake images of situations that never happened. Remote working and lack of social, face-to-face interaction combines with the endless social media feeds that provide you with content that only strengthens your world view, regardless of its factual base. On top, we are expected to create results so fast that collaboration and working truly together has become a slowing factor. We claim to collaborate, but in fact we seem to work in parallel rather than together.
“Collaboration must become a cornerstone in the modern boardroom. The diversity of thought, perspective, and experience is crucial and board dynamics play a massive part in this. Understanding how the board members interact, how the chair facilitates discussion and manages discord can make or break the efficacy of building successful corporate strategy. ”
Understanding team dynamics has been a big success in leadership teams, and a lot of companies invest time and money to create cohesive management teams. Should this same emphasis and rigour be applied to boards?
Next Generation Digital
The majority of the current cohort of board members cannot be considered digital natives, as they were not raised in the era of smart technology, cloud, and artificial intelligence. According to an article on Fortune, the average age of an S&P 500 board member was 63.1 in 2023, and the average age of a first time board member was 54.4. Many companies’ futures depend on not only getting to the heart of emerging technologies but reinventing themselves there.
Humanity has a tendency to overestimate the speed of change but simultaneously underestimate the impact of it. Generative artificial intelligence (AI) is the latest technology to potentially create a seismic shift for business. There is a pressure on boards to understand where the technology might aid or disrupt their industry and/or their business’s value chain. Not least, they will need to create the legal and community standards that AI models adhere to, so that they can maintain trust with their stakeholders.
At the same time, board members and directors can now use AI tools to enhance corporate governance and develop effective leadership strategies. As mentioned previously, boards are under immense pressure to meet regulations and demonstrate transparency. AI can play a pivotal role in streamlining governance processes by automating tasks such as risk assessment, legal document review, and data privacy compliance. It may also not be long until AI technologies may also make decisions, and augmented decision-making process could empower boards to identify opportunities, assess risks, and strategise with unparalleled precision. A digital double-edged sword indeed.
Heikki Otsolampi
MD Alumni Finland
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