Boards of directors have long been the cornerstone of corporate governance, steering organisations to detect risks and opportunities like never before.
Traditionally, boards have been seen as oversight bodies, ensuring compliance and holding great accountability with setting direction. However, in recent years, due to the global pandemic and volatile economic conditions, the environment board members are facing has become increasingly complex and dynamic. This has required the role and functioning of boards to undergo significant transformation. Boards now need to be flexible, agile and react to unknown conditions.
This article explores how boards of the future should be focusing on three critical areas: understanding the role of the next-generation board director, determining the most effective board composition, and future-proofing from uncertainty.
In the past, board directors were often seen primarily as custodians of shareholder interests, with a strong focus on financial oversight and regulatory compliance. However, the contemporary view of a board director's role has expanded significantly. Today, directors are expected to be strategic advisors, offering insights and guidance that can drive long-term value creation.
Modern board directors must possess a deep understanding of the business landscape, including emerging competitors trends, technological advancements, and shifting consumer behaviours. This requires continuous learning and adaptability and needing to improve their knowledge.
Additionally, boards are more responsible in fostering corporate culture, promoting diversity and inclusion and ensuring the organisation’s sustainability practices. In a recent report by the FT, ‘The Great Board Report’ the biggest knowledge gap of 58% boards have expressed lies in digital technologies, with a growing gap rising in ESG metrics/disclosures.
The shift from a purely oversight role to a more engaged, strategic driver reflects the growing complexity and interconnectedness of global business operations that boards have accountability over. This has led to many boards recruiting independent directors with specialist skills to bridge such gaps. A prominent example is in cyber security.
The composition of boards has also evolved over the last few decades. Historically, boards were often composed of individuals from similar backgrounds, typically drawn from the upper rankings of the corporate ladder. This often led to a lack of diverse perspectives and innovative thinking.
Today, the most effective boards are well-balanced. In particular, those that prioritise diversity in all its forms—gender, ethnicity, professional background, and skill sets. Research has shown that diverse boards are better equipped to navigate complex challenges and drive innovation. The FT recently published, ‘The Great Board Reboot Report’, where they stated in recent years, 45% of boards have been successful in appointing members from a wide variety of backgrounds, but 40% say there needs to be a much greater diversity among its members.
From our experience, effective board composition now involves a strategic mix of industry experts, financial analysts, technology innovators, and leaders with experience in areas such as environmental sustainability and social governance.
They should also consider setting criteria for board appointments and challenge executives to generate Board candidates that are well beyond the usual characteristics. An example of this is, the inclusion of younger directors who can bring fresh perspectives on digital transformation and modern consumer behaviour is becoming increasingly valuable. This diversity not only enhances the board's decision-making capabilities but also reflects the diverse stakeholder groups that modern organisations serve. Even if companies are successful in appointing board members who fulfil an effective composition, there is still significant work in creating the right culture and dynamics in the room and beyond.
Strategies for future-proofing board governance from uncertainty
As we look to the future, boards must continue to evolve to remain effective in an increasingly volatile and uncertain world. Since Covid-19, boards have been forced to examine their appetite for uncertainty and anticipate disruption proactively.
An effective board agenda now prioritises discussions on strategic initiatives, in particular risk management, identifying new and emerging threats, and long-term mitigation planning.
Boards are dedicating more time to exploring emerging trends and technologies that can be leveraged to create competitive advantages and help with any future unexpected eventualities. This shift in mindset and behaviour requires a more agile and dynamic approach to the board.
Progressive boards seem to be at the forefront of this change by asking the most unpopular and elephant-in-the-room questions. A recent Harvard Business Review outlined 10 questions board members should be asking. One includes: ‘What don’t you know about the company that you’re most concerned about?” These awkward questions are the pinnacle to elevating the board’s awareness and therefore making them accountable to drive change as individuals and as a team.
Board evolution can be likened to the game of Jenga, where each piece represents an aspect of board function—composition, role, agenda, etc. Just as in Jenga, the stability and success of a board depend on the careful selection and placement of each piece.
To future-proof themselves, boards must be willing to "shake things up" and challenge traditional practices. This might involve rethinking board tenure and refreshment policies to ensure continuous infusion of new ideas, diverse people and different perspectives. It could also mean adopting more flexible and adaptive governance models that can respond swiftly to change.
The evolution of boards is an ongoing process and will continue to evolve with time, driven by the need to adapt to rapidly changing business, economic and social environments. By redefining the role of the board of directors, embracing diverse and effective board composition, and future-proofing from uncertainty, boards can position themselves to support and guide their organisations more effectively.
The future board will be one that is dynamic, inclusive, and strategically focused—ready to navigate the complexities of tomorrow’s world with confidence and agility.