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Forecasting the future board

type
Resource
author
By Institute of Directors
date
18 Mar 2021
read time
4 min to read
reflective material
  • The future board could look significantly different as technology and innovation help transform governance.
  • Board leadership and effective governance are critical to ensure organisations are around for the long-term.
  • Boards should regularly set aside time to review and challenge how they are operating and to help improve board effectiveness.


Overview

Boards have a critical role in leading sustainable success for business and society – but they are under pressure. They have to be across a vast array of complex and diverse issues and also need to be responsive to increasing stakeholder expectations. The legal landscape is also changing, with increasing personal liability for directors, the rise of class actions, more active regulators and litigation funders holding directors to account and escalating their responsibilities.

Many boards are facing a time dilemma and can be weighed down by often voluminous board papers, compliance and risk, without sufficient time to discuss and debate critical strategic and performance issues. It is vital to address these challenges to ensure the future board remains effective and drives sound governance. The future board could look significantly different as technology and innovation help transform how boards operate.

The discussion paper Always on duty: the future board (2019) published by the IoD and MinterEllisonRuddWatts explores trends, challenges and opportunities facing directors, today and into the future. Some of the key issues and themes are summarised below.

Pressure on the traditional operating model

The traditional operating model is under pressure as boards seek to adjust to greater and broader demands and expectations. Challenges include:

  • how to manage increasing demands on directors’ time
  • if and how boards can meet differently
  • ways to maximise the use of board committees
  • understanding the business – working inside and outside of the boardroom
  • getting the right information – including getting bad and good news, addressing information asymmetry and ensuring quality over quantity.


Board leadership

Board leadership and effective governance are critical to ensure organisations are around for the long-term. All board members have a crucial role to play. The need for courageous, committed, resilient and responsible board leadership is heightened in times of crisis and recovery. Our publication Board leadership through 2020 highlights considerations and questions for boards in carrying out their responsibilities and providing leadership.

Working with management

Accountability is a core component of corporate governance and the separation of governance and management provides clear lines of accountability. However, boards need to be sufficiently engaged with the business to adequately supervise management and meet the standard of care expected of them.

In a complex operating environment, coupled with greater stakeholder expectations and accountability for performance, it is likely that boards will be even more engaged. The impact of the coronavirus pandemic on governance meant that many boards changed how they were working with, and supporting, management, which may have a more enduring effect on how they operate into the future, eg shorter more frequent online meetings.

Prioritising people

People are central to organisational success and there is an increasing need and expectation for boards to focus more broadly on workforce-related matters such as culture, talent, compensation, learning and development and the future of work. The ‘social’ component of ESG has been elevated as boards and organisations prioritise people.

Technology and innovation in the boardroom

Technology has the potential to fundamentally change the way boards meet, breaking down global barriers for directors such as location and language. Human directors may not be replaced by robo directors any time soon. However, AI, virtual and augmented reality, data analytics, holoportation and other technologies will help transform the way boards operate.

As a result of lockdowns due to COVID-19 and the need for physical distancing, many board meetings around New Zealand and the world moved online. While there are some challenges and issues with online meetings, developments in this space are set to continue due to the advantages such as reduced travel time.     

Reporting revolution

With high-speed data and new technologies, there is huge potential for disruption and transformative change in how companies report, verify and communicate performance information. AI in particular is expected to improve efficiencies in annual report preparation through digitising and automating various finance and reporting functions. The speed of creating and making data available and new technologies will also help drive more dynamic or instant auditing.

Technology aside, many organisations are evolving how they report information to the board (eg by providing more frequent, shorter updates). The board is responsible for ensuring that it gets the information it needs for effective decision-making and if it is not, this should be raised with management as a priority.

Stakeholders and shareholders

There is a continuing trend for boards to connect and hear more from stakeholders, as their expectations increase and they become more vocal in airing concerns and aspirations. ESG and sustainability issues will continue to receive increasing attention.

Boards will also continue to focus on improving shareholder engagement with stronger, deeper and ongoing communication. Shareholder meetings will continue to evolve with more organisations embracing technology including hosting hybrid meetings (combining physical and virtual).

The learning board and tomorrow’s directors

The future board will remain responsible for the strategic and overall direction of the organisation. It will always be learning, embracing new competencies and diversity of thought and capability. Quality reflection and strengthening professionalism will be embedded into continuous development.

Directors who serve on multiple boards will need to ensure that they have enough time available to adequately address and fulfil the demands of each role, especially in a crisis or major organisational event such as mergers and acquisitions. The number of directorships an individual holds is under increasing scrutiny particularly for listed company roles. Proxy advisors and institutional investors are challenging the election of individual directors where their directorships exceed limits set out in proxy voting guidance. 

Board and director evaluations will evolve to help hold the board accountable and focus on continuous learning, to help improve performance. The need to properly remunerate directors will also be important to attract experienced and skilled directors to governance roles.

 

Call to action

In a call to action, Always on duty: the future board (2019) urges boards to set aside time to review and challenge how they are operating to improve board effectiveness, including through innovation.

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