A lot has happened in the last week. What does this mean for board directors?

Equity: On August 6, Nasdaq received SEC approval to establish new rules requiring the boards of listed companies to be diverse. This comes on the heels of the French Parliament voting unanimously in favor of similar minimum requirements for French companies.?And the US Census results were released August 12, providing evidence of just how much diversity will impact everything – including, for companies, the ability to attract and retain the best talent and customer base.

Climate: On August 9, The Intergovernmental Panel on Climate Change (IPCC) issued a nearly 4,000 page report. It contained no surprises, but it hit hard: as a globe, we are going to face fundamental change in our climate no matter what we do. This came on the heels of the landmark Dutch court action against Royal Dutch Shell, and upstart Engine No. 1’s galvanizing of major institutional shareholders to seat new board members at ExxonMobil.?To cap it off on August 12, The National Oceanographic and Atmospheric Administration (NOAA) reported that July was the hottest month ever on record - globally.?

Technology: On August 11, Accenture, the $45 billion global technology consulting juggernaut, confirmed that it was hit with a ransomware attack. It is hard to imagine a company more prepared to prevent such an attack, and they are going to be fine--but they are far from alone. ?And, fueled by themes of “access” and “democratization”, two newly public companies are reshaping how we buy and invest in your company.?On August 10, Coinbase (COIN) reported massive growth in financial results, as the trading week ended (August 13), RobinHood (HOOD) stood at an eye-popping post IPO valuation of $42 billion.

One week.

If you are like most corporate board members – and boards — you know that the trends underlying these events will fundamentally change your company, your stakeholders’ expectations, and your role. But ?how? And what does it mean for you? ?

While the future is hard to predict no matter how much scenario planning one does, the fundamental question for board members is the role of the corporation itself in society.

We share these thoughts on that role and what it means for today’s, and tomorrow’s board members.

License to Operate.

Yesterday: A corporation exists at the pleasure of society to meet some of its needs. So long as the corporation meets those needs--for example, employment, goods, or services--and, usually, pays some taxes, society allows it to limit its liability and protect the interests of those who invest, lead, and govern. Including you, the board.

Today: Governments are straining to meet the needs of society. The COVID-19 pandemic alone required a flood of government spending and debt around the world to avoid a serious system collapse.?Corporations stepped into the breach, working alongside local and national governments to provide support. Governments’ capacity to solve serious, large scale societal problems is frail– and more are coming. Corporations’ license to operate will increasingly depend on helping to address these problems.

This creates enormous opportunity for companies that contribute to solving them. ?Those that are seen contributing to the problems may have their protections stripped away. Boards have a crucial role to play in engaging executives and guiding companies’ actions.

Board Members as Elected Officials.

Yesterday: You were recommended, in most cases by the board itself, and eventually confirmed by the shareholders in a proxy vote at the annual meeting.?While the process is disciplined, and macro pressures can affect selection, relatively few people are directly involved.?The board itself has the most influence. ?A few powerful institutional shareholders technically hold the key to your election, but until recently, they largely waved you through, deferring to or preferring to “work with” the company. ?Your constituency has been those investors, and your most important role overseeing a CEO who delivers shareholder return.

Today: It is no longer safe to assume you will be waved through – or hold your seat next time. It is more likely you will have to earn and keep your seat in a more transparent process involving a larger set of influencers. You and other directors are held responsible for integrating the needs of all stakeholders, showing an understanding of how customers’, employees’, communities’, and investors’ interests are interconnected.?Already, CEO turnover is increasingly driven by factors other than poor financial performance.?Activist investors (financial and non-financial alike) are gaining traction with the institutional investors, who are increasingly looking beyond financial results, to equity, climate, and other broader concerns. Boards will have to evaluate, improve, and augment their own capabilities, diversity, and sources of insight and those of the CEO. ?A more continuous, transparent and dynamic approach to your own succession and that of the CEO is likely.

Beyond Independence and Expertise.

Yesterday: In the last half of the 20th ?century, most board members were insiders – friends, founding family members, shareholders, management team members. Your role was largely to advise. This approach failed early in this century, when inadequate oversight led to savings and loan scandals, corporate failures, and the 2008 banking collapse — and significant changes in financial governance, board independence and required expertise. ?You still advise, but boards have become largely independent, and your role has become much more that of a monitor.?

Today: Your role as an independent monitor will only accelerate. Election to the board will depend on it. Separation of the CEO and chair positions will become the norm around the world. The drive to improve board diversity will reinforce independence.?A recent trend in independent directors moving into the CEO slot is worth watching.?But, independence and expertise is not enough when you are continually faced with the kind of week we’ve just seen – where what you don’t know is the norm. ?You will have to draw in the world around you to understand these broader issues, and the needs of the people you now represent. ?The most effective boards will work exceptionally well with each other – absorbing, learning and deliberating fast together. ?No one is advocating for daily interaction, but a more agile approach to governance is coming.

What does all of this mean for boards and board members??The answers are not clear yet.?But, your relationship with the world around you is expanding – and with it, your role. ?This is not an abstract discussion anymore.?The scale of the challenge – and the opportunity for impact are enormous.??How will you and your CEO ensure you have the skills, experience, trust and connectivity required to play this critical role and drive much more than financial return well into the future? ?

A lot has happened in one week.

Are you ready?