The world has transformed. Is your board keeping up?

Three moves can help

I have always believed that the boardroom, and the individuals who fill it, have a responsibility not just to the company, not just to investors, but to all stakeholders and to society as a whole. Fiduciary duties would support this in most jurisdictions, although their interpretation is often narrower. ?

Indeed, many boards still do not operate in this way. Of course, directors need to be held responsible for a company’s strategy, succession planning, risk and reputation management and so on: these things always stay. But too often you’ll find a group of men in their sixties and seventies (and yes, it is still predominantly white men) too narrowly focused on shorter-term shareholder returns, and not fully embracing their wider responsibilities in our fast-changing external environment.?

This is a problem for CEOs. The longer you ignore a mismatch between the company’s needs and the board’s contribution, the greater the missed opportunities and risks for the business. For most, the operating environment has changed dramatically. C-suites are fighting to stay on top of the here-and-now, whether it’s shifting geopolitics, disrupted supply chains or advances in AI. At the same time, they need to position the company for longer-term challenges, including climate change, nature loss and growing division and inequality in our societies. And all while relentlessly focusing on performance and efficiency.

In this difficult endeavour directors should be an active ally, helping senior executives redesign business-as-usual in exceptional times. But in many cases this isn’t happening. Board composition, skill sets and culture aren’t adapting fast enough. In other words, many CEOs feel that their boards are holding them back.?

When I first took the job of CEO at Unilever my only request was to work with the newly-appointed Chair to significantly refresh the Board. They were great people with impressive experience, but this didn’t automatically make them the best group to help turn the business around after a decade of decline. We needed drastic change not only in the company, where we replaced 75 of the top 100 leaders, but also to ensure the Board was equipped and motivated to support the new strategy. As with management, this called for more diversity (not least to reflect our customer base, which was heavily skewed towards women), skills in business transformation, knowledge of the emerging markets that would be critical for new growth, greater understanding of technology, and expertise in areas such as sustainability.

We built a Board that was gender-balanced, more diverse, more curious, and more expert in the ways we needed. A Board that was acutely results driven, and which understood the importance of our employees, suppliers, communities and other stakeholders, including the planet and future generations, in driving those results. They became a key player in our team and helped take Unilever from strength to strength. And when we needed them, we stood together; including when we fended off what would have been a murderous takeover by Kraft-Heinz. Over ten years we delivered a 290% shareholder return which well-outperformed our competitors and the markets, and we secured our reputation as a trusted, responsible and leading company. All this testified to the quality of our Board. And no surprise that the vast majority of our investors were happy as well. ?

Not everyone agrees with this approach. I’ve heard all too often that we shouldn’t expect too much of our directors. That the main focus should be on good governance and past experience, and that specialists can be called in for new or complex topics. But letting the board off the hook for the big issues facing the company is like saying that the CEO doesn’t need to understand the nuts-and-bolts of the business, or should outsource strategy to consultants. How often does that approach win?

On critical matters, whether it’s having a sensitivity to political realities, understanding the way in which AI is transforming the business landscape, or appreciating the growing need to make sustainability a core part of the company’s strategy, boards require at least a basic understanding to exercise their duties. When they don’t, often directors will be collectively and unhelpfully risk averse, shying away from bold decisions for fear of repercussions.?

Ultimately, it’s about having directors with the right mindset for the world we are living in today. Board membership shouldn’t just be a CV-enhancing corporate right-of-passage. It should be a vocation. Directors with a Net Positive mindset will be driven to build companies which not only survive in the new context, but which seize the opportunities, play their part in strengthening our economies and planet, and thrive as a result.?

In most cases, tinkering and making cosmetic changes won’t achieve a great deal. In the same way that many businesses require major transformations to succeed into the future, so too do many boardrooms. Three bigger moves can make a difference. We’ll call them the three Cs.

First, composition. Who is in the room, and what perspectives do they bring? There has been some progress on diversity, but it’s not fast enough. Analysis of the Russell 3000 shows women hold just 29% of seats, with limited improvement over the past few years. In the S&P 500 the average age of a board member is 63, and one in five are over 75. Too many companies are entrusting their governance to a small subsection of society, and missing out on a wealth of other experience. We can be more aggressive in creating boardrooms which better reflect our societies. This means pursuing diversity in all senses: gender, race, sexual orientation, disability, geography, politics, worldview, and so on; and making room at the table for younger people too.

Second, competence. Are your board members across the big topics? Often the bar is low. People get on if they have a corporate background, or some measure of financial literacy. But would you go to a surgeon who only knew about general practice medicine? The most effective boards have a deeper understanding of the myriad of complex questions companies face today. Helle Bank J?rgensen, GCB.D, CCB.D and NACD.DC , the CEO of Competent Boards, puts it simply: "you need to be informed to make informed decisions.” When Competent Boards and 丹麦哥本哈根商学院 conducted a study of Fortune 500 companies in Europe and the US, they found that only 2% have boards which exhibit high levels of sustainability expertise. Alarmingly, analysis by Spencer Stuart found that fewer than one in five board members at big US companies had some sort of ESG experience. No wonder many fail to fully grasp the link between lasting value and climate ambition, for instance, or action to restore biodiversity.

Partly you deepen a board’s collective competence through appointments, but also through culture. Continuous learning should be baked into the role. At Unilever we offered the Board learning sessions ahead of meetings, on topics which were new, pressing, or not widely understood, from AI to circularity and carbon markets. They weren’t compulsory and still we saw 100% attendance again and again. And the subsequent discussions benefitted immeasurably. CEOs and chairs can expect their directors to be hungry for this kind of knowledge, and those who aren’t can be decisively moved on. Lifetime tenures serve no one.

Third, contribution. In other words, what is the board actually working on, and how well are they doing it? Often the complaint is that compliance takes too much time. Too many meetings are wasted on governance issues which could be delegated to committees, or dealt with faster through decent pre-reads, freeing up time for strategic discussions. Make time for the tough stuff. How is the company taking responsibility for its total impact in the world including, for example, “scope 3” emissions? How is it treating its suppliers and their workers? How is it engaging with regulators and politicians, and what are its trade associations doing in its name?

Board meetings should, at times, feel uncomfortable. On sensitive issues, members should sometimes wildly disagree. This is the route to breakthrough; you’ll build a better company as a result. And when you are looking at the board’s contribution, don’t shy away from performance: many would benefit from stricter reviews, including a stronger link to compensation.?

It's a choice for every company, and every CEO and Chair. You can proactively drive the changes that are needed to convene and cultivate the best directors; and to build a board that will truly help position the business for the future. Or you can ignore the inadequacies, and risk ending up with a board filled with dinosaurs. Just be warned: they are not so good with meteors, and we live in meteoric times.

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