By the Nasdaq Center for Board Excellence ‘Board Best Practices’ Insights Council: James Beasley, Head of Board Advisory in EMEA at Nasdaq, Coco Brown, Founder and CEO of Athena Alliance, Kaley Childs Karaffa, Esq., Head of Board Advisory in Americas at Nasdaq, Jessica N. Grounds, co-founder of Mine the Gap, and Jerusha Stewart, JD, CEO and co-founder of Take Your Seat
Today’s business world calls for a fundamental reinvention – a fundamental reset – of how boards are structured and run, how they govern, and how they can be more forward-looking. The company has seen changes, such as the transition to remote working, the use of technology, a new sense of inclusiveness, and an overall focus on shareholder and stakeholder expectations. So how do boards keep pace with a rapidly changing business world, which includes the goal of greater diversity and new areas of expertise and critical perspectives to propel their companies forward? ‘to come up ?
It’s time to rethink board roles and how directors can come together to provide intentional and strategic governance.
An outdated approach to corporate governance
Corporate governance is firmly rooted in the creation of shareholder value, with its origins dating back to the 16th and 17th centuries. In the last century, the concept of corporate governance has focused on the intersection of the board of directors, the CEO and the shareholders.
The 2008 financial crisis was the last major incident of council reform when the collective feet of councils were held to the fire for change. The threat of collapse, government bailouts and continued public outcry have called for a refocus on financial health and a reinterpretation of performance. Throughout the developed world, people have asked themselves, “What is the role of the board of directors, and how could or should it have provided oversight to prevent these incidents?”
Boards face challenges and uncertainties
Faced with increasing pressure and uncertainty, boards can no longer focus solely on overseeing the internal management of the company; now they must respond to growing external pressures, including business and societal changes, to ensure sustainability. Companies are invited (and expected) to take a stand. We live and operate in an age of social movements, the climate crisis, a global pandemic, an employee-driven labor market and the prospect of international conflict. And all of this is happening at a time when timely news and information is at the fingertips of stakeholders.
According to the Institute of Directors (IoD), boards of directors were designed to “ensure the prosperity of the company by collectively directing the affairs of the company, while meeting the appropriate interests of its shareholders and stakeholders. concerned” to make broader decisions essential to the strategic vision and the performance of the company. Yet many boards are unprepared for this dynamic environment where societal pressures are intensifying and new risks continue to emerge. The unprepared sit in the eye of the storm, with some wondering if there will be a return to environments once known.
Rethinking board roles and structure
To meet the changing demands of the business, it is important that the roles of the board also evolve. An antiquated structure that places executive authority above accountability has often been perpetuated by passive board refreshment and the absence of diversity of any kind. This facilitated the spread of the status quo and arguably laissez-faire complacency around matching skills and experience to critical roles. Boards need to ask themselves what is missing, what might be needed in the future.
The days when boards of directors could be isolated from the rest of the company are long gone. There is a real and compelling expectation from stakeholders that directors are in tune with the business and the needs of different stakeholder groups, embody its brand and desired culture, and understand risk in all its forms, while maintaining appropriate independence from everyday life. daytime.
Savvy directors are rethinking what duty of care means: to be knowledgeable, educated and meaningfully engaged. They walk the plant, meet with shareholders, coach management teams, champion key issues and observe operational management meetings. There is a vast opportunity to determine how the board can better understand the strategic differentiators, performance and risks of the business and exercise high quality independent oversight. The structure of the board of directors is essential to its independence from the CEO and management. It is an essential mechanism for overseeing management’s pursuit of ethical performance and promoting the sustainability and long-term success of the business for the benefit of all stakeholders.
Innovative boards are thinking about how creating new committees might allow them to better exercise their oversight. Research and development, innovation, sustainability, diversity, equity and inclusion, and people and culture are just a few of the issues on which boards of directors in search of excellence have focused. concentrated on the creation of dedicated bodies. Committees dig deeper into key topics and seek deeper analysis, research and advice to accelerate understanding for the benefit of the broader board and corporate stakeholders. It is not uncommon to see directors attending meetings of committees they are not part of, just to absorb information and learn from them. And increasingly, board members are engaging with leadership teams on strategic issues driven by interactions stemming from new committee structures.
Bring diverse perspectives
Diversity is intrinsically linked to business performance. Regional policies, such as the California Women on Boards Mandate (SB 826) in the United States and the Capital Requirements Directive in the EU, are a start to changing the mindset of boards. administration towards promoting diversity and embracing inclusivity as a means of their own performance. But advancing diversity in the boardroom goes beyond numbers. To help ensure a diversity of perspectives, it is important that boards create a sense of belonging and a culture of respect.
According to a study published in 2021, women make up 75% of CHROs and 47% of CMOs, and black professionals hold only 3.2% of leadership positions in large companies in the United States. Bringing in new perspectives from people who have held valuable leadership roles beyond CEO and CFO can naturally allow for more diverse perspectives. With these perspectives, varied experiences, and expanded levels of intellectual curiosity sitting around the board table, boards can be more dynamic and robust in their thinking, as well as more informed in their decision-making.
The urgency to act
The first step for boards is to rethink their own corporate governance arrangements, such as leadership roles that support board independence and committees that allow the board to focus on strategically important matters. There is a tangible benefit to engaging third parties to help guide the board evaluation and renewal process and consider the broader impact on corporate governance. Planning for refresh and restructuring should be an ongoing discussion. It should also be integrated into strategy, business planning and performance discussions, evolving deliberately and thoughtfully to meet the needs of the business rather than just the starting points of administrators.
Ultimately, the role of the board has evolved, with higher stakes, higher pressure and greater accountability. Forward-looking companies will see a diverse board of directors as a strategic advantage and an investment in the company’s longevity and sustainability.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The authors are members of the Nasdaq Center for Board Excellence’ Board Best Practices Guidance Council. the Analysis Tips play a key role in contributing to transformational education by identifying and addressing corporate governance issues. Members share a commitment to creating lasting value, driving board excellence, and advancing corporate leadership through authentic interactions and the exchange of ideas.