An agenda for Boards of Directors in the 2020s
Megatrends in the post-COVID-19 world and its 10 implications for Boards of Directors
The world has been going through enormous technological, environmental, and social transformations that are already redefining how organizations operate and create value. Among these megatrends, each with a colossal impact on businesses, stand out:
- An increasingly transparent, interconnected, volatile and unpredictable world.
- The arrival of the smart machine age made possible by advances in artificial intelligence.
- The fourth industrial revolution, with new technologies and business models that are blurring the lines between the physical, digital, and biological domains.
- Global warming and the ever-closer horizon of ecological collapse.
- Population aging and other demographic changes.
- The trend of increasing economic inequality to unprecedented levels.
- Increasing political polarization and the rise of geopolitical risks.
- The growing stakeholders’ expectations on the role of business in society.
- Increased investor activism, with pressures for both short-term profits and better long-term ESG (environmental, social and governance) standards.
- The emergence of a new Zeitgeist, particularly in the new generations, characterized by greater socio-environmental awareness, emphasis on experiences instead of routines and a concept of success more related to quality of life than to material achievements.
The emergence of COVID-19 in early 2020, a “black swan” completely unexpected by the vast majority of companies, added an extraordinary degree of complexity to these transformations.
The world has simply stopped, and it is not yet clear which world will emerge after the pandemic. What seems to be evident is that this remarkable period in everyone’s life will lead to a “new normal” quite different from before.
To navigate in such turbulent and unpredictable waters, many companies will need a major overhaul in their leaders’ mindsets and in the modus operandi at their top.
Boards of directors have a critical role in helping its companies adapt to the new times, as their mission is to ensure the organization’s long-term sustainability and success.
There are 10 main implications of the ongoing transformations on the role, functioning, culture and composition of the boards of directors:
Role of the Board
Implication # 1: More focus on the future, less on the past
Boards should start spending way more time discussing strategic issues oriented to the future of the organization than to operational issues of everyday life or from its recent past, such as the traditional “budget vs. actual” analysis.
Although each organization has its peculiarity, a good goal would be to allocate at least 70% of the time in meetings to topics related to the company’s future risks and directions. This goal is not easy to achieve, as many boards tend to dedicate their time to numerous controls, procedural issues, and management oversight.
In recent works that we carried out with large Brazilian companies, for example, we found that, on average, more than 90% of the time on their boards had been spent on the retrospective analysis of financial indicators as well as on legal or operational issues of everyday life.
Implication # 2: New topics on the Board’s agenda, with an emphasis on the human factor
It is crucial for boards to start having high-quality discussions about issues related to the emerging technological, environmental, and social changes of the XXI Century.
Among the topics to be regularly included in the board agenda, the following stand out: the organization’s purpose, values and culture; the leadership styles prevalent at all levels of the company on a daily basis; mental health and employee engagement; human capital; the creation of an environment conducive to intrinsic motivation and innovation; disruptive and cyber risks; data management and privacy; artificial intelligence; and, the digitalization of the economy and society.
More than superficial debates, it is necessary to start measuring them so that senior leaders can continuously monitor how their organizations are doing on these issues.
Take, for example, ethical culture. It is a key issue to effectively manage the company’s ethical, reputational and compliance risks, as well as to establish a culture of innovation and high engagement. A company’s ethical culture can be measured objectively in a variety of ways, far beyond the routine and extremely limited climate survey.
This measurement includes: i) the analysis of cultural indicators from different areas; ii) structured interviews with employees on the factors and pressures that can lead to ethical blindness; iii) electronic surveys to assess the level of convergence between the organization’s formal and informal value systems; iv) the analysis of employee reviews on websites such as Glassdoor.
It is up to the boards, therefore, to give issues such as ethical culture their due relevance by measuring and monitoring them objectively.
Implication # 3: Need for greater optimization of the Board’s time
Including new topics in meetings already packed with subjects is an extremely challenging task. To improve the agenda and productivity of board meetings, it is necessary to optimize of its time.
This means analyzing with mathematical rigor where the meeting time is being consumed. In particular, it is necessary to regularly reflect on the following questions: How is the board spending its time? How should it be ideally spending? What should be done to eliminate this gap?
In recent works with boards of large companies, for example, we found that only 15% of its time had been spent on deliberative matters, while their directors believed that at least 50% of the time should be allocated to decisions.
Thinking holistically about all the topics the board needs to cover throughout the year is also essential. This allows for the creation of an annual agenda with space for topics that, although not urgent, are essential for the future of the organization and need to be worked on proactively (rather than reactively).
Another critical task is to improve the activities before and after the meetings. The quality and productivity of the board sessions, for example, tend to be directly proportional to the preparation of its members before the meetings (while the duration of the meetings tends to be inversely proportional to directors’ prior preparation).
Board Processes and Culture
Implication # 4: A more continuous and fluid performance of the board
Boards generally work on an intermittent basis, with little communication among directors between meetings. In view of the huge speed of the changes underway and the various forms of interaction made possible by the new technologies, there is an increasing demand for directors’ continuous engagement in addition to the monthly or bi-monthly meetings.
This constant and real-time interaction, in turn, will allow the typical 8 to 12 annual board meetings to be mainly dedicated to deepening the debates and to the personal contact needed to build a healthy esprit de corps among directors.
Creating ad hoc structures dedicated to relevant or urgent topics is another way for the board to assume a more dynamic role.
Why not, for example, create temporary commissions dedicated to increasingly important issues, such as the organization’s purpose and values, employees’ mental health or artificial intelligence? This would allow the board to create a richer critical mass on topics that will be more and more on its agenda.
An important caveat: a more continuous involvement of the board does not mean interfering in the daily management of the company. The division of tasks remains essential, including the healthy segregation of responsibilities.
Implication # 5: More time for debates, less time for one-sided transmission of information
Boards will not reap the benefits of having a rich agenda if its meetings are characterized by one-sided presentation of information instead of by interaction and debates. For this, it is crucial to develop a culture that encourages board members to express their divergences in a constructive manner in order to maintain collegiality and mutual respect.
This requires directors to have a set of qualities associated with emotional intelligence that are still rarely discussed in boards, such as self-control, empathy, ability to listen, social competence and the sensitivity to understand the personality of other board members.
In particular, it is imperative that board members adopt the so-called “active listening” in meetings, showing genuine interest through eye contact, full attention on peers and a positive body language.
Another little-observed cultural aspect is to be able to create an emotionally positive environment in which members feel free to clarify their doubts, including those that are apparently simple and could expose them to a situation of vulnerability.
The minimum amount of time, therefore, should be spent on purely informative presentations loaded with tons of slides and spreadsheets.
Implication # 6: More emphasis on continuous learning and individual assessment
In a knowledge economy, if people and companies are not learning on a daily basis, then they are already becoming obsolete.
As a result, boards should create a continuous development agenda for its members. This agenda must go beyond technical matters. It must contemplate the improvement of soft skills fundamental to interpersonal relationships, such as active listening, mediation, and non-violent communication.
This theme refers to the imperative for companies to advance in the process of evaluating the individual contribution of each director for the board. This is a chief issue for boards working in an environment of enormous complexity with increasing demands from society about its role.
Boards should go way beyond, therefore, the traditional annual self-assessments based on standardized checklists about the collective performance of the body (many times answered by directors without due reflection and subsequent debate).
More and more, each director should understand what is expected of his or her individual performance and be regularly evaluated according to these expectations.
Implication # 7: More transparency and better communication with stakeholders
The board has its credibility reinforced as external audiences realize that it has been adequately fulfilling its role. This is particularly important in times of crisis or reputational problems. In these cases, the first question that arises is “where was the board of that organization?”.
Therefore, boards should provide high transparency about its modus operandi for shareholders and other key stakeholders. One good example is to prepare an annual report along the lines of the British governance report to explain how the board has been adding value to the organization (click here to see one of these reports).
Among the questions to be discussed in this document, the following stand out: How did the board operate throughout the year? How many times did it meet, what were the main topics discussed and the attendance of its members? How does it make decisions? How does the board show accountability? How is it evaluated? How does it identify directors who are not showing behaviors in line with the organization’s values? What is done to directors who devote insufficient time or add little value to the board? How do its members update themselves on technical and soft skills? How do they follow what is going on at the company between meetings? How do they relate to the organization’s main stakeholders? How are directors paid? How have board committees worked? What is the procedure for the appointment of new directors? How does the board mitigate conflicts of interest?
In addition to providing high visibility about its functioning, board should establish communication channels with the main stakeholders of the organization to capture their perceptions and listen to their demands in a structured way.
Implication # 8: Balance between expertise in emerging issues and industry experience
In order to have quality-discussions about the emerging themes of the 21st century, most boards should enrich themselves by adding members with expertise on human and technological issues.
Specifically, boards should increasingly select members with expertise in topics such as organizational culture, human capital, leadership, digital technologies, data science, cybersecurity, social and environmental issues.
This does not mean, of course, that experiences traditionally demanded by boards on topics such as finance, law, accounting, and general management will become irrelevant. The important thing is to find a balance between expertise in emerging themes and industry, financial and leadership experience.
Above all, the board should regularly assess whether it has the appropriate human capital to fulfill its responsibilities and add value to the company.
Implication # 9: Diversity with inclusion and camaraderie
In addition to new expertise, new times demand new perspectives on the board. For this, it is crucial to have a high variety of thoughts on the board.
Much has been said in recent years on the need to increase the diversity of gender, backgrounds, experiences, age, tenure, culture, and race on the boards in order to expand their wealth of thoughts and make them more attuned with the demands of society.
This is a topic already present in companies and most directors express support for the idea of raising the plurality of the body. The practice, however, is very difficult: we are hardwired by evolution to privilege what is familiar, which lead us to surround ourselves with similar people in terms of demographics and worldviews.
It is necessary to move forward from the infrequent and uncommitted discussion on board diversity to action. This means approving concrete initiatives, such as new practices for selecting directors and the adoption of objective goals on this issue.
For boards that have already raised the diversity of their members in different dimensions, the second step comes: to create an inclusive environment in which all voices — especially those of younger members, those recently appointed to the board or those belong to minorities — are equally heard on the board.
On this issue, an additional remark is relevant: boards should advance on diversity and inclusion without losing the camaraderie among the members that provides cohesion, trust and togetherness.
It is a delicate trade-off, as the excess of friendship among directors can make it difficult for some to express disagreements or question those who have not been contributing satisfactorily to the organization.
Chair of the board
Implication # 10: From a cerebral and liturgical approach to a human and cultural one
Starting a process of changing deep-rooted habits on the board requires leadership. The chairperson is the maestro of the board and has a fundamental role in this process.
It is up to him or her to stop having a basically cerebral and liturgical role and start focusing more on the cultural and human aspects of the board. This means leading directors through persuasion and example so that the board establishes the aspired culture with healthy relationships, as emotionally positive environment and a focus on continuous learning and improvement.
Above all, the board must have a culture fully aligned with the culture it desires for the organization so it can serve as a role model for managers. One example: if the board wants the company to have a culture characterized by trust, civility, and transparency, then it must practice these behaviors among its members and in its interactions with executives and employees.
Another assignment to be increasingly required of the chairperson is the ability to carry out candid conversations with directors who have been performing below expectations. This is obviously an extremely delicate issue, postponed by most boards due to relationships of friendship or even reverence among directors (usually prominent individuals who have achieved professional success).
To sum up:
The role of the board has been traditionally associated with supervising management, setting the strategy, and monitoring its execution. In an increasingly transparent and volatile world, these roles tend to be less relevant.
On the one hand, new technologies make it possible to oversee management and performance indicators in real time through different ways. On the other hand, the desire to predict and control the future that characterizes most strategic planning processes adds less and less value in unpredictable markets.
In order to stay in tune with the new times, therefore, boards need to evolve in its role, functioning, culture and composition. As I have been emphasizing for many years, the focus on the human factor should occupy more and more time of the boards’ agenda, requiring new skills and experiences by directors.
To add value in the 21st century, boards will increasingly need to ensure that their organizations are oriented towards a greater purpose, that daily decisions are driven by solid values, and that senior managers exhibit ethical behaviors in line with the desired culture.
Prof. Dr. Alexandre Di Miceli is a professional speaker, business thinker and founder of Virtuous Company, a top management consultancy that provides cutting edge knowledge on corporate governance, ethical culture, leadership, diversity, and company purpose.
He is the author of “The Virtuous Barrel: How to Transform Corporate Scandals into Good Businesses” as well as of the best-selling books on corporate governance and business ethics in Brazil, including “Corporate Governance in Brazil and in the World”, “Behavioral Business Ethics: Solutions for Management in the 21st Century”, and “Corporate Governance: The Essentials for Leaders”.
He thanks Prof. Dr. Angela Donaggio for her valuable comments and suggestions.