Rewriting the rulebook: building a post-pandemic board

September 2021  |  COVER STORY | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

September 2021 Issue

Given the scale of change since the onset of coronavirus (COVID-19), there must be a reactive shift in the boardroom. As vaccination efforts gather pace and social distancing measures are rolled back, companies need to rethink their board composition to prepare for the ‘new normal’. The experience and knowledge possessed by board members has to be tuned to today’s realities, as they lead their companies into the future.

For some organisations, the pandemic may even be an opportunity to hit the ‘reset’ button as they evolve skill sets, strategies and operations to align with market dynamics, social imperatives and regulatory developments. The increased emphasis placed on environmental, social and corporate governance (ESG) issues, alongside the continued growth of the #MeToo and Black Lives Matter movements, are among the trends that will shape post-pandemic business.

A focus on risk and resilience

Over the last 18 months or so, boards have been forced to tackle complex problems. As the pandemic spread, it became essential to evaluate employee wellbeing, supply chain disruption and risk mitigation, among other concerns. “Boards have had to shift focus toward protecting employees’ health and safety, understanding key operational and financial risks, maintaining market share, brand value and shareholder value, and overall achieving operational continuity,” says Susan C. Keating, chief executive of Women Corporate Directors. “Overwhelming priority has been placed on crisis management and scenario planning – not likely the case pre-pandemic.

“The turbulence of 2020 has forced directors to look at risk in an entirely new way,” she continues. “Many companies are considering establishing standalone risk committees and integrating risk and strategy on a long-term basis. These dedicated committees will drill down on new risks and make recommendations to the full board on ways to approach mitigation strategies. Risk has become an integral part of strategy development, as companies have seen what happens when unanticipated threats come to light. As a result, companies are coming out of the pandemic more resilient than before.”

During the pandemic, purpose became a north star to keep the board and company moving forward against a background of fear, uncertainty and doubt, notes Anthony Goodman, senior client partner and head of the board effectiveness practice at Korn Ferry. “Commitment to purpose determines how aligned the board and management can be around the big four topics for boards today: strategy, risk, ESG and human capital management,” he says. “Boards work most effectively when there is alignment between purpose, composition and their process and structure.”

According to Mr Goodman, boards of directors were impacted by the pandemic in three major ways: their relationship with management, what they discussed in meetings, and how they worked together.

“Firstly, the need for transparency and candour meant that boards and senior executives had to be radically human with each other – empathy was coupled with a continuing focus on accountability,” he says. “Secondly, boards moved rapidly from discussions about survival and liquidity to an intense focus on the safety of employees and the company’s role in the community in swift order. The twin ‘crises’ of pandemic and the social justice movement sparked by the murder of George Floyd dominated the agenda. Finally, boards switched overnight from in-person to Zoom meetings, gaining a degree of efficiency but losing the more informal human connection to management and to each other.”

Going forward, boards will need to work more closely with management as they navigate uncharted territory and plan for what lies ahead. According to McKinsey Global Surveys: “The best boards go beyond fiduciary responsibilities to take a more active role in constructively challenging and providing input on a broader range of matters. Strong collaboration between the chief executive and board chair can help define a broad and forward-looking board agenda, one that, rather than pressuring management to maximise short-term shareholder value, instead helps the company thrive for years.”

Measuring board effectiveness

An effective board represents the interests of all stakeholders, holds executive leadership accountable for adequately addressing corporate governance issues, and provides well-informed strategic guidance that generates both short- and long-term value. But how can companies tell whether their boards are actually effective?

“Effectiveness can be measured by key performance indicators such as financial performance and growth, stakeholder satisfaction – including customers and employees – and goals to achieve diversity, equity and inclusion (DE&I) plans,” says Ms Keating. “It is also critical to evaluate the board’s agenda. Are they prioritising the right topics for the company and its stakeholders? Are they leveraging the right people to advise on the issues? Do topics keep circulating without resolution because of a lack of expertise in the areas? If the latter is the case, the board may need to consider restructuring accordingly.

“Overall, boards need to be honest with themselves – if they are not helping the company achieve critical milestones or work through key issues for its stakeholders, then they need to be willing to re-evaluate and take the necessary steps to increase effectiveness,” she adds.

Recently, the lens through which boards view themselves has been refocused. “For many years, boards evaluated themselves solely on how well their process and structure worked,” explains Mr Goodman. “Do we have the right committees? Do we get the right level of information? Are we talking about the right issues? Increasingly, concern has shifted to who sits at the table and for how long. How do we ensure our newly diversifying boards are inclusive? How do we strike the right relationship with management? It is much harder to get at those issues with an annual survey. They require board leaders to engage directly with each board member and the candid give-and-take of constructive feedback.”

There are a number of reasons why companies should regularly review the effectiveness of their boards, the most pressing of which is that influential investors now demand it. By regularly reviewing the board’s performance, organisations can clarify the individual and collective roles and responsibilities of directors, to ensure greater understanding of what is expected of them. This, in turn, can help boards become more effective.

Whether mandatory or voluntary, board evaluation can help tackle key issues which may be hindering company performance, such as roles, competencies, productivity, communication or recruitment. It also informs how the board reacts to changing market trends. The appraisal process can also strengthen the working relationship between the board and senior executives, establishing a healthy balance of power.

Technology continues to improve the process of assessing and benchmarking board performance. Though digital tools are playing an ever-increasing role, most board evaluations are still inefficiently ‘paper-based’. But things are changing.

“Boards seem to have become much more engaged in meaningful evaluation of late, including for individual directors,” says Mr Goodman. “Technology has a part to play in enabling efficient and cost-effective interviewing, hosting surveys, enabling benchmarking and providing access to director assessment tools, but the real software at the heart of a board evaluation is human. Whether conducted by the board leadership or by an external adviser, it is the trusted and candid connection between people that generates the deepest and most valuable insights.”

Succession and the talent pipeline

Companies must strive to build a board that enables them to thrive in a different environment, where each director is a key asset. Certainly, succession planning should always be a priority, but the pandemic has forced companies to assess whether their existing approach is adequate to meet future needs.

While companies should actively nurture and harvest internal talent, they would be wise to appoint directors from different backgrounds, perhaps even outside their core industry, who can offer new skill sets and perspectives which could prove invaluable going forward.

“Investing in the talent pipeline to ensure a wider range of skills and a more diverse talent pool are available to select from is crucial,” suggests Jordan Owen, head of global entity management at DWF. “This includes looking at different areas of expertise individuals can bring to the board. While finance and business skills may have had dominance, sourcing candidates from different backgrounds and with more diversity will assist in developing an agile board that can respond to the continuing developments and challenges companies are facing. In the last year, a board may have benefitted from a director with a medical background, as an example.”

The push for diversity

Board competencies and composition may need to change in the post-pandemic era. The pandemic highlighted the board directors who could add value and those who could not, those who could be compassionately human and those who could not, those who could manage to join a Zoom call and those who could not, suggests Mr Goodman.

In the wake of COVID-19, companies face a range of challenges, including cash and liquidity management, business continuity, third-party risk, crisis response, business agility, remote working and succession planning. “Boards need to be better at matching skills and experiences to the emerging strategy and staying ahead of the ESG issues that could ultimately unseat them,” says Mr Goodman.

To address these issues, it will be important to expand skills across creativity, communication, critical thinking and complex problem solving. Diversity can provide new perspectives and viewpoints in these areas.

“The existing focus on diversity has only continued to increase during the pandemic and will continue to grow as we enter a post-pandemic world,” suggests Ms Owen. “This can be seen with the increasing number of countries implementing new initiatives and targets for boards to meet, and these go beyond the initial focus of gender and are looking to representation of ethnicity, LGBTQ+ and disability at board level — and throughout organisations.

“Having a diverse board has been shown in several studies to improve performance, creating an agile board that can react to challenges and embrace opportunities,” she continues. “The pandemic has created a stream of unique risks and issues, and boards have needed to be able to adapt. Focus on embracing diversity, increasing representation on boards and succession planning to invest in a pipeline of individuals from a wide variety of backgrounds and experiences should continue to be key. The result should be a board built for better operations, engagement and success.”

While board diversity encompasses age, race, gender, qualifications, backgrounds, skills and experience, it also includes a range of personal convictions and attitudes. It can improve the quality and objectivity of the decision-making process and drive greater innovation and creativity.

Inclusive and diverse boards are also more likely to be effective. To achieve this, however, board members must be receptive to diversity and actively committed to seeking value-adding candidates. Individuals who believe they have been approached for the sake of ‘tokenism’ are likely to push back or reject any overture.

Tech-savvy boards

Technology to support the board has been growing for several years, with the pandemic accelerating that trend. According to Ms Keating, boards are seeing the benefits technology can add to their own operations, including the adoption of videoconferencing, which allows for more frequent meetings and discussions on timely matters. “Technology has also paved the way for easier global connections and idea sharing,” she adds.

Technology is being harnessed to generate sophisticated graphics and other visual aids for inclusion in reports, for example. This information can be used for comparative purposes and shared throughout organisations, locally and internationally.

“Board portal software has proved to be extremely useful for the sharing of data, collaboration, and even simply assisting with the organisation of meetings,” says Ms Owen. “Plus, the rise of virtual meetings delivers flexibility in bringing the board together. Further, it can assist in the delivery of masses of data, tracking targets and performance, and interacting with other areas of the business.

“However, there can be dangers of relying too heavily on technology, with operations becoming a tick-box exercise,” she warns. “Quality of data needs to be assured, and there needs to be collaboration and interaction to discuss key matters and ensure correct analysis. Striking a balance is key.”

In a similar vein, according to Mr Goodman, the pandemic highlighted the need for directors with digital transformation experience, as technology programmes accelerated across all industries. “Looking for directors who are digital natives also creates some age diversity for the board,” he notes.

Integrating new board members

When bringing in a new board member, the onboarding process should be as comprehensive as possible. Onboarding is a process that extends beyond orientation and could last several months. Incoming board members should experience a welcoming environment and be provided with a support framework that encourages them to contribute and add value to the company. One option is to pair a new director with an existing member of the board, to help them get up to speed as quickly as possible.

Boards must have a clearly defined culture which empowers a new board member to demonstrate independence while accepting accountability. Expected ethical standards should be communicated to newcomers, focusing on a board member’s responsibilities, the nature of the company’s operations and directors’ liabilities.

The board members of tomorrow will have priorities different to previous generations. The pandemic has offered organisations the opportunity to review and revise their approach to many issues, including social justice, the development of sustainable business models and the increased use of technology to drive innovation. To realise the company’s vision, the right team will need to be assembled.

© Financier Worldwide

BY

Richard Summerfield