Balancing the focus of the board, in an evolving landscape of board governance

"Someone is sitting in the shade today because someone planted a tree a long time ago."

— Warren Buffett, American business magnate, investor and philanthropist.

A quick perusal of the Board trends and challenges for 2024 reads like a road map of the past 16 years of Board and Business advancements since the publication of the Walker Review into Corporate Governance following the 2008 Financial Crisis.

As the external pressures on businesses have grown and accelerated, the sleepy backwater of the Boardroom has turned into front page news. The reputation of Businesses and their Directors can spin on a bad headline and a Social Media frenzy. This raft of pressures and responsibilities often make the role of a Non-Executive Board Director seem daunting and complex, so it is important to remember the fundamental role of the Board.

The core role of the Board in ensuring that the Business performs well based on profitability and sustained value increase continues, while at the same time new emerging themes have established themselves as consistent and persistent challenges for Business. This has provoked a fundamental shift of Board Directors focus into areas that they would never have dreamt of ‘interfering’ with in the past.?

These responsibilities and accountabilities represent a triumvirate of focus for the Board, from the original Core Performance and Sustainability demands, to the increased focus on the wider world of Stakeholders, through to the accelerating spotlight on Culture and Innovation.

In the 2024 Board Environment a key aspect of Board Effectiveness is the ability to balance this triumvirate of pressures across the Board’s Business agenda, which can easily become skewed as the issues compete for airtime. It is a consistent message from the Board Reviews we have conducted, that Board Directors want to spend more time on the discussion and debate of Business Issues, Business Risks and the Strategic Challenges and less on compliance minutia.?

This balance requires a keen awareness of the traditional and emerging challenges for the Board. How the Board and Chair address and shape this balance is a mark of Board Effectiveness which is rarely articulated and developed. Creating this balance exerts differing pressures on the Board, it speaks to the development of a coherent Board where the skills, expertise and diversity are not only present, but are actively engaged to facilitate dynamic debate, which support constructive and strategic discussions. ?

The primary responsibility of the Board continues to assess the Business performance and sustainability, requiring the Board to monitor performance and accountability, evaluate the management performance of the CEO and Executive team and ensure that they are executing the Company’s Strategy effectively and meeting performance targets. This includes holding the management accountable for their actions and decisions, setting and reviewing compensation in the context of Business goals and making changes when necessary to protect the Company’s long-term interests.

The focus on the sustainability of the Business requires Strategic Focus which has always been the marker of a high performing Board, shaping and steering the long-term strategy of the Business. There is, however, an increasing pressure on all Boards to lengthen their Strategic view beyond the 3-year plan, going beyond a specific CEO tenure and creating a consistent and sustainable focus on the ‘Brand’ and Purpose of the Business.?

As a part of Sustainability, the Risk element to a Business has always been present and discussed to varying degrees. The last 16 years have, however, driven a more clearly identified and quantified view of the Business Risks. There is now a much greater call by NEDs for deep dives into specific Risks and developments for Board discussion and debate. This broader outlook, debate and discussion on Geopolitical and Reputational Risk are often well facilitated by the increased diversity of the Non-Executive Directors with alternative and holistic capabilities.

The second area of focus has seen the Business and the Board Stakeholder landscape which has expanded significantly since the financial crisis. While effective Boards have always had key Stakeholders in mind as they develop their Businesses, the definition of Stakeholder has advanced well beyond the traditional Investor and Customer Communities, onto a broader range of Stakeholders, including Employees, Suppliers, Regulators and Communities in which the Company operates. This involves understanding and addressing the needs and concerns of these groups.? Boards are expected to improve communication with Stakeholders, providing clear and consistent updates on Company Performance, Strategy, and Governance

A ’new’ kid on the block in the Stakeholder arena has been the rapid emergence of Environmental, Social and Governance (ESG) issues and how these impact on Business. The Board plays a crucial role in integrating these factors into the Company’s Strategy and Operations, including setting goals, monitoring progress, and ensuring transparent ESG reporting.? The specific area of Climate-related Risks and opportunities is an evolving and sensitive landscape for the Board, who have an increasing responsibility for overseeing the Company’s approach, ensuring the Business is resilient and responsive to environmental challenges.

The final area of notable focus for Boards since the 2008 Financial Crisis, and identified as a failure of Boards at the time, is the active engagement with the Corporate Culture of the Business.? There is now a real pressure on Boards to shape and monitor the appropriate standards, values and behaviour throughout the Organisation. This is no easy feat and requires a much greater insight, understanding and guidance of the Business’s approach to workforce issues, such as talent management, employee relations, reward and workplace well-being.?

Included in this Corporate Culture is the Board’s own behaviour and integrity, setting the tone for the Business Culture and ethical behaviours, ensuring that the Board and Business engages with sound Governance Practices, including transparency, accountability, and fairness in decision-making.

It is increasingly recognised that part of this ‘Cultural Alertness’ at the Board level includes a Board’s ability to look purposefully at the long-term market Business trends, developments and technical innovations as pressure points on the Businesses Culture and Behaviour. This role has become increasingly challenging as market trends and technical innovations emerge at lightning speed and are less rooted in past Business landscapes. This is one of the new underpinning pressures for renewal and diversity of the Board capabilities, to understand these ‘new’ Business landscapes and potential Risks.

While Boards must ensure that the Company is leveraging technology effectively to drive innovation, efficiency, and competitiveness, it must understand the pressure to advance in the context of the Company’s reputation and ‘Brand’. This includes understanding the implications of AI, automation and data analytics on the Business in this new high speed tecno-innovation landscape.

This triumvirate of pressures has underpinned the ‘modern’ Boards fixation on its own Capability, Diversity and Succession. This pressure emerges from the need to evolve a more sophisticated set of standards, considerations and pro-active actions to increase the capability and relevance of the Board. This seeks to achieve a more effective decision-making based on the Board’s skills, experiences, gender, and ethnicity, and to reflect the diversity of the markets served and Strategic challenges of the Business. In parallel the Board’s scrutiny of the depth of the Leadership pipeline for the Business has emerged, going beyond a view of the next CEO and FD, to a much more Strategic sense of Executive Succession and talent available to lead the Business into the future.

In 2024, the Board's role is required to be proactive and forward-thinking, providing Leadership balance, oversight and compliance with the demands of modern Businesses, including Technology Adoption, Sustainability, and Stakeholder Engagement.? We sometimes fail to appreciate and celebrate how far we have come in developing Board Effectiveness since the Financial Crisis and the publication of the Walker Review on Corporate Governance in 2008.

There is a clear challenge for today’s Boards to manage all these new responsibilities and accountabilities while still remaining balanced and focused on the performance and sustainability of the Business.?

We are fortunate in my view that we have an emerging cadre of younger, engaged and skilled Non Executive Board Directors who view their ability to continue to shape and direct the future of Businesses as an exciting and meaningful prospect.

#Helenpitcher, #leadership, #Boardgovernance, #corporateculture