Corporate Governance,ESG,Risk Management,Strategy,Technology
June 5, 2019
Is Your Board Future-Ready?
June 5, 2019
Most organizations face an uncertain future that will be
shaped by a mix of exciting market opportunities and emerging threats. With
unrelenting, continuous, and disruptive change the norm, board members must ask
themselves a fundamental question: “Are we future-ready?”
term “future-ready” captures an action orientation with a focus on an important
question: Does the board’s composition, focus, and agenda position it to best
serve the company? Is the board ready to represent its stakeholders and achieve
sustainable, long-term growth and profitability? Below are eight suggestions for
preparing to be a future-ready board.
- Engage in big picture, out-of-the-box, bold, and disruptive strategic thinking. Enough agenda time and focus should be allocated to engage in future-oriented thinking. Future-ready boards consider how to integrate disruption considerations into setting strategy; challenging strategic assumptions; exploring “what if” questions; reviewing scenario analysis results; considering mergers and acquisitions and partnering opportunities; and reimagining the company’s position within the value chain. The future-ready board is resourceful in integrating outside perspectives into the dialogue with management to stimulate fresh points of view about market developments and trends and their strategic implications—particularly when there are shifts in strategic context. The prepared board is committed to continuous education and networking both in and outside the industry while striving to learn as fast as the world is changing.
- When warranted, challenge the CEO and management team to take a long-term focus in a constructive manner. The focus of a future-ready company is on balancing the entrepreneurial drive to create enterprise value with the appropriate prudence to protect enterprise value. The right mindset is to achieve this balance consistent with the board- and CEO-approved risk appetite, such that neither the emphasis on creating value nor on protecting it is too disproportionately strong relative to the other. To support this balance, the future-ready board should consist of a diverse group of independent directors that is prepared to challenge key assumptions underlying the strategy and business model, evaluate management and company performance, exercise appropriate due diligence, and ask the tough questions when necessary—all with the objective of supporting the CEO in delivering long-term shareholder value.
- Ensure management focuses on appropriate sustainability objectives while delivering acceptable financial results. The future-ready board is mindful of the developing interest in the impact of environmental, social, and governance (ESG) issues on long-term value creation, and ensures that management keeps ESG in focus when formulating strategy and policy. There are evolving business cases around ESG performance and reporting, voluntary initiatives and disclosures by competitors, and the specter of possible regulation, legislation, and proxy battles in specific ESG areas such as climate change. All fuel the future-ready board’s focus on integrating sustainability considerations into the strategy-setting process.
- Foster diversity in skills, experience, and perspectives in the boardroom, C-suite, and management ranks. Starting at the top, emphasis on diversity in director selection and in the C-suite facilitates desired diversity outcomes within the executive ranks and throughout the organization. Gender diversity and pay equity are important priorities in many industries. The future-ready board understands that a diverse organization is likely to be better positioned to attract and retain top talent, expand into new markets, gain and sustain competitive advantage, and maintain a talented executive bench that facilitates succession plans
- Think and act digitally. The future-ready board has access to the expertise and experience needed to understand how digital disruption can affect the organization’s business model, value proposition, and industry. For example, it has an eye on the demographic, social, and technological trends affecting the workplace and ensures that management has processes in place to evaluate their implications to the company’s labor model and make adjustments as necessary. It encourages management to align the velocity of key decision-making processes to the speed of change. It also encourages management to be immersed in digital business concepts, building digital ecosystems and leveraging digital hyperscaling platforms to facilitate rapid growth. It ensures that management digitizes new and enhanced products and services to strengthen customer engagement and deploys digital technologies to improve operational performance and information for decision-making.
- Focus on innovation performance. The future-ready board allocates time for discussing the company’s innovation strategy and culture. It insists on supporting this dialogue with appropriate, innovation-specific metrics. The scorecard should tell the full story of how the innovation and growth strategy is performing relative to competitors, customer feedback, return on investment targets, and the effectiveness of the company’s innovation culture.
- Foster effective communications with shareholders. The future-ready board places a premium on communicating with shareholders in proxy reports, at annual meetings, and through other venues in accordance with the securities laws on relevant topics (e.g., CEO evaluation and succession, executive compensation, the board’s nomination and selection process, strategic direction, and emerging issues).
- Nurture a flexible, adaptive, resilient, and ethical culture. Future-ready directors ensure that the incentives and reward systems in place for management are in line with the company’s risk appetite, and that the organization is sufficiently adept and agile in navigating change in a complex, changing business environment. They work closely with the CEO to ensure that the company’s culture is aligned with the enterprise’s strategy and core values, the mood in the middle is aligned with the tone at the top, and any gaps between the current and desired cultures are addressed in a timely manner.
not exhaustive, the above suggestions represent a good start at improving the
board’s future readiness. There is, of course, the inevitable “blocking and
tackling” around board oversight of such matters as executing strategy, establishing
accountability for results, monitoring performance and preserving reputation
and brand image. But these oversight activities alone will not deliver future