Have We Broken the Board?

Over recent decades, we’ve witnessed the exponential expansion of the eco-system for Boards and Directors resulting from new regulations and rules, more reporting requirements, increased operational and governance complexity, heightened stakeholder expectations, and new responsibilities.

As our world continues to change at social, economic, scientific, and geopolitical levels, stakeholders of all kinds are looking to Boards to channel their individual demands. Directors are expected to not only keep up and comply with this tsunami of change, but to do so with a perfect score - singing to the exact hymn sheet of those who set the height of the delivery bar.

At the same time, the accountability and responsibility lines between management and Boards is blurring more and more - especially for commercial entities and NFPs. Here, it's creeping ever closer towards Directors, notwithstanding the opposite ends of the spectrum for Director and management remuneration (and that's if Directors are paid at all), and the inverse amount of time each spends in the business.

Who sits back however, at a macro level and reflects '...maybe we’ve reached a point where an extended period of consolidation needs to be instigated so that (1) the right players can properly review our current governance system, (2) Boards can properly get on top of their expanded duties, and (3) we can review the Director-entry and education system to ensure we'll have the requisite level of talent needed in the future?'.

What I and others are now thinking a lot about is the incremental ‘pile on’ of things now required to be done by Boards, in addition to what appears to be an emerging impatience with the humans on our Boards who can and do err – even the really outstanding ones.?

Boards are comprised of a small group of people doing a heck of a lot of work for what feels like pretty much the benefit of everyone on the planet.? These are individuals who periodically come together around a table to try and make it all happen in alignment to the short, sharp expectations of various stakeholders.

It feels like we now expect Boards to solve a lot of the world’s problems, when in fact the primary role of a Board is to protect and advance the interests of the company and to add value for shareholders. It’s a bludgeoning statement which will make a lot of people grimace, but it’s true. That doesn’t mean (as we all know) that Boards can’t and don’t account for both specific and broader stakeholder interests when making decisions. But it just feels like we now want Boards (and governments as well) to fix all of our problems....

Theories which hold that the Board must be held accountable for absolutely everything (from the micro to the macro) might be right from a purely hierarchical viewpoint. But the reality of what’s now required, and what's being demanded, legislated or antagonised for by the external world has, I believe, resulted in us reaching a potential negative tipping point for Boards and their ability to do the job.

This article is about exploring today’s world which demands that Boards and Directors must shoulder and endure the increasing level of complexity and duties accruing at the pointy end of our corporate trees.? I reflect on questions such as:

• whether the design of our current education and governance system for Boards will be able to continue to deliver for the modern era of expectations, regulations and responsibilities?;
• have we lost sight of the reasons why Boards were created in the first place? Have we eclipsed that and overstepped their purpose?
• whether Boards should be expected to do as much as they now need to, given the limited amount of time they spend ‘on the business’ during the year?;
• when there’s blame to be raised we often default straight to the Board, when we also have CEOs and whole teams of Executives who work in the business day in day out, and who should be first and foremost accountable for the performance (or not) of their entities and themselves.

My fellow board-watcher, Australian-based Paul Smith (founder of Future Directors) – someone who lives and breathes the world of Boards – aligns with my curiosity here, and shared this with me when asked for his opinion on the current state:

• “Are we asking too much of boards? Well,?if we can agree that directors are struggling to keep up with increased complexity, then yes, we are asking too much. What is the solution?
• For me, it’s not one thing, but three; people,?structures?and?systems. The future board is a fundamental rethink of how we?govern,?and we MUST start now. There will not be one solution, but many”.

Separately I recently listened to an excellent podcast [4] hosted by Sally PARRISH GAICD, NED, Amazon best selling author, speaker and owner of the Board Coaching Institute with @drdeanblomson where Dr Blomson (an MBA teacher, business consultant, NED, researcher and strategic advisor) commented (and I paraphrase):

• Boards now live in a VUCA world – volatile; uncertain; complex; ambiguous; and that Boards now have to peddle harder to stay on top of things. And the forces are not abating.
• It's a complete hallucination that as 8 or 10 well intentioned, hopefully skilled and constructive directors we can stay on top of things – we cannot.
• It's a very different world to the one in which Boards were designed i.e. one which had more patient capital, less investors and less dispersion of suppliers, customers, stakeholders etc.

I encourage you to listen to this podcast, as Sally and Dean talk about a myriad of connected topics that align with this article - including proffering some really interesting solutions for the future of Boards.

So we can all agree it’s not an easy fix.? The other reasons why the future state of Boards concerns me includes the following:

Talent is turning away from Boards.

Personal contacts and plenty of media stories confirm that a portion of critical talent which would have once looked to Boards as their next or ultimate career landing place, is now reversing that ambition.

Who we are losing from our future pipeline includes (but is not limited to) mid-term and retiring CEOs and Executives with decades of business experience, highly experienced exemplary Directors looking to get out the game come their next AGM, and then others who are being incredibly selective when considering new Board roles (and who often don’t want appointments in heavily regulated industries or the listed space).

In their minds, part of the reason is that the remuneration relative to the risks and the satisfaction of ‘doing good’ really isn’t worth the time, hassle, responsibility, stress, reputation and financial risk.? They’ll find something else to do with their time – for them, it’s far less risky and less laborious to support organisations from a philanthropic or advisory capacity, than it is to go into fiduciary territory.

As recently stated by Philip Chronican GAICD, Chair of and Non-Executive Director for Woolworths[1]:

• “… While it might be safer and financially more rewarding to stay on the private side of business, large public companies are still where the big economic shifts occur, and it’s important we have a steady stream of quality people prepared to serve on those boards.”
• …“I know several people who would’ve been very good directors, but who have chosen to stay in the private side of business,” he says. “They don’t want either the public exposure or the legal liability that goes with being the director of a public company.”

On the increasing levels of responsibilities being placed on Directors today, internationally renowned governance expert Professor R 'Bob' Garratt [2] shared this with me:

• “…the great international surge from the 1992 Cadbury Report has petered out [and] is being led backwards by legislators and regulators ignorant of even the duties of a director, and the role of the board...”

In the northern hemisphere autumn 2024, Professor Garratt will publish his new book titled ‘Breaking Corporate Governance’s Social Silence: Shining A Light On A Naughtie World’.?

• He will argue that “…all the involved parties – Directors, stakeholders, legislators, regulators, and the public - are aware of the general lack of corporate governance competence as they experience it every day.? However, the Social Silence exists as the issues are thought to be too big and threatening to the status quo to be brought out for public discussion and action.”

This book will be a fascinating book for all of us who study, or who are on, Boards.

My other concern (one I've harbored for a very long time) is that one can be appointed to a Board on the (manifestly deficient) basis of needing to be just 18 years and older and with a pulse.

• This is a truly startling position relative to the vast responsibilities incurred by individuals who sign a Consent to Act.? There is still no minimum educational or entry requirements set down to be appointed to a Board in Australia – nada, zero, none.
• ?And yet you can be sued at the drop of a hat with significant financial and reputational consequences, regardless of which end of the sophistication spectrum your Board sits. The law cares nothing (as it should) for what you do or don’t know. But not everyone realises that.
• To drive a car on the road – a potentially dangerous proposition where there are a bunch of different things happening all at the one time and you have definitive responsibilities and accountabilities to others in the same space – you needed to have read a rule book, be tested on those rules both in writing and on the road. In a space where you can kill or seriously harm a person or property, we accept that you have to have a licence and prove you can drive.
• But we don’t have that test for Board Directors who often sit in spaces where their strategies and decisions can have just as devastating an effect on individuals and communities. No licence required. The complexity of their roles continue to rise – and yet, the height of the entry bar never moves off zero. I find that really odd.
• In her podcast with @drdeanblomson referenced earlier, Sally PARRISH GAICD skillfully asks: why we haven't recently challenged the definition of ‘fit and proper’ in our legislative and governance world? She asks what does fit and proper really look like in order to serve modern day businesses - believing asking such questions is the way to start the change we need to see in this space.

In thinking about the overarching reason for this article, my question is why do we think that requiring MORE of everything from Boards (year in, year out) – coupled with the zero knowledge entry bar - will necessarily deliver better outcomes for shareholders and society over the longer term?

I believe in the reason why Boards were originally created and their purpose. I very much believe in their commercial and fiduciary roles, their power to genuinely and significantly value-add to our world; I believe in their contribution to society, and their ability to steer companies into successful and sustainable vehicles which can benefit a cross section of stakeholders for the longer term.?

And I appreciate that companies get their licence to exist from our social and legislative fabric.? I also know that good Boards are REALLY good - and there are a lot of great ones out there doing this almighty slog the very best way they can.

I wholly concur with those who demand our Boards uphold their legal obligations as required, and that Boards should aim to be the very best version they can, for as long as they can. I’ll never argue against Boards not upholding their fiduciary responsibilities.

But we must consider whether the ongoing accumulation of regulations, reporting, and the expectation of perfection performance from Boards is such that we may end up walking into a future seriously devoid of the level of talent and experience we need for people to deliver in this space – and we reach a point where literally no-one can do everything being asked of them.

As reflected to me by internationally experienced governance, risk and compliance leader Leonora Roccisano-Wilson “….these pressures will prevent Boards from achieving the heightened standards at all. We can agree that some standards do need to be lifted, but we need to help Boards achieve them rather than set them up to fail”.

I close with a famous statement from Jack Welch (which I learned about from Dr Dean Blomson via the podcast by Sally Parrish referenced earlier) which I think is an absolute pearler for this discussion and something to leave you with:

• "If the rate of change on the outside exceeds the rate of change on the inside, the end is near for the organisation".
• Dr Dean Blomson then extrapolates this to ask:?“Is the rate of change on the outside greater than our rate of change as a Board?”

Eventually something may give in this space, and it could be a very loud crack indeed when that split eventually shows up. ?

Welcome your thoughts.

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The author shares the above thoughts on a PURELY personal basis, with the content of this article having absolutely NO connection or parallels with, nor any links, to any current or previous employers to any degree.

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Many thanks to Paul Smith , Professor R 'Bob' Garratt , Leonora Roccisano-Wilson , Anna Leibel , Sally PARRISH GAICD and Dr Dean Blomson for their contributions to this article either directly (via quotes or article review), or indirectly via providing the public with a link to their thinking on the topics referenced herein.

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[1] “The Future of the ASX”; The future of the ASX (aicd.com.au); accessed online 1 October 2023; written by Steph D’Souza – Editor in Chief, Company Director Magazine – Medium Rare

[2] Director - Good Governance Development Ltd, London; Global Ambassador for the Caribbean Corporate Governance Institute, London; External Examiner at Gulf Cooperation Council Board Development Institute; governance advisor and critic; author of multiple books on governance and companies including ‘The Fish Rots From The Head: The Crisis in our Boardrooms’

[3] Image from https://www.fireyourstress.com/blog/at_work/16-quick-strategies-to-easily-meet-tight-deadlines/

[4] EP013 The Boardroom of the Future with Dr Dean Blomson - Board Coaching Institute