CHANGING EXPECTATIONS FROM CORPORATE BOARDS | Aparna Sharma | Consulting Editor | The People Management

Globally, Boardrooms are evolving. Heightened scrutiny, empowered investors, rising competition, regulation and technological disruption have combined with the record pace and unpredictability of change to dramatically alter how boards are constituted and how they operate. This perfect storm is shaking up Board composition, expanding and redefining what is expected of boards, and fundamentally changing what it means to be a Director.

With renewed focus on improved Corporate Governance, today’s Boards have to prioritize their issues carefully. Governance suffers when boards spend too much time dealing with what’s in front of them and not enough time focusing on the future. According to McKinsey, Board Directors spend around 70% of their time reviewing quarterly reports, audit reviews, budgets and compliance matters. That percentage closely mirrors the percentage that board directors of 100 years ago spent on similar issues during the Industrial Revolution. In general, boards need to find a better balance between overseeing the present state of affairs and preparing for the needs of the future.

With such a large amount of time being dedicated to the present, boards leave themselves with precious little time to spend on future planning. On the whole, Boards would benefit from building a Board with an eye on the future.

Changing Times Call for Changes in Boards

A forward-thinking mentality is necessary because of how demographic trends are reshaping the global economy. CEOs are primarily focused on immediate challenges to meet their performance expectations, so focusing on the future isn’t always a top priority.

Board directors should be looking out farther than anyone else in their role as overseers and they should be doing it consistently. The key to a forward-thinking board is to carefully compose a board that’s capable of planning for the future.

Building a “Board for the Future”

Forward-thinking board directors have to see themselves as more than just supporting the CEO. They need to be able to engage intelligently in discussions about strategic planning. Board directors also need to have the confidence to form their opinions independently. They need to consider the information as presented by the executive team and to work collaboratively with them and the rest of the board to develop meaningful, achievable short- and long-term goals.

What prevents some boards from spending proper time to get the board composition right is that they’re often under pressure to fill vacant seats and haven’t given the Nomination & Remuneration committee proper time to plan for the right candidates. Nomination & Remuneration committees need to think about the board’s needs at least three years ahead and not rush into the process of
selecting candidates. The best way to do this is to work early on recruiting for the skills and experiences that will take the board into the future. By doing a search that’s farther out, it opens up the availability of a greater number of candidates.

Redefining the Expectations for the Board’s Role in the Future

Future board directors will still need to fill all the familiar duties like setting strategy, monitoring risks, planning for succession and keeping watch over market trends. At the same time, it’s helpful to the board and the executive team to spend some time in clarifying roles. Board directors still need to be careful about trying to micromanage executive teams and to refrain from bullying their way into
management matters. Having clearly defined roles and boundaries will help to defuse tensions and prevent misunderstandings and trust issues.

In seeking the best talent, boards may want to make it known that they have increased expectations for their board. It’s reasonable for boards to expect their directors to put in at least 25 days a year for board service. In recruiting new members, boards should also make it known that they expect their board directors to spend some time in the field viewing production, R&D facilities and other departments so that they gain first-hand knowledge and experience of the company. It’s also helpful if board directors have knowledge of external issues like operations, markets and competitors. Some companies orient their board directors by having them ride along with one of their salespeople.

Pay isn’t typically a factor when recruiting board directors. Most of them are well-paid, and board director recruits aren’t necessarily in it for the money alone. The reward for most board directors comes from a participatory environment that is inspirational, satisfying and strengthens personal networks and enhances their reputation for having good insight and influencing decisions.

Creating a Forward-Thinking Mindset

Today’s boards need to be familiar with the external landscape. Some boards find it helpful to either bring in experts from various fields or send board directors to overseas locations to expose them to new technologies and developments that are relevant to the company’s strategy. Forward-thinking boards should strive to be able to compare internal performance data with competitors across key
performance indicators. They should also try to evaluate the company’s reputation from the outside-in to better understand how outsiders view the company. The information they bring to the table will help them collaborate better with management.