There has been massive instability at a global level in the last two years, including geopolitical events, the pandemic, and inflation. However, we are also in the midst of a longer-term shift arising from political instability and deglobalisation. There is increasing investor focus on ESG, notably integrated reporting and disclosure requirements when it comes to climate change and stakeholder engagement. All these trends have major implications for board members, who need to be increasingly effective in overseeing risk and strategy.
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses board future-proofing with Professor Didier Cossin, a Professor at IMD Switzerland and the Founding Director of the IMD Global Board Centre. A renowned global expert in governance, Professor Cossin works with boards and senior leaders worldwide to provide the latest thinking on best-in-class board effectiveness, dynamics, and design.
"You have to create a certain level of resilience while building up agility"
The most important shifts affecting boards currently involve the world's current polarisation. Issues such as climate and ESG have become very polarising in many ways. Boards need to create a certain level of resilience while building up their agility in preparedness for the big shifts that are happening.
"Responsibilities board members didn't have in the past and pressures from all sides of society from the regulators"
As boards become more engaged than before, they need more granular understanding while keeping a high-level view and not micromanaging. Fiduciary and social responsibility have increased overall, while meetings have become more frequent, especially with digital capability. This requires board members to be increasingly present.
Boards should consider the big trends against all the organisation's activities and develop a view around which activities are exposed. They should increase the resilience of the organisation by integrating risk into strategic thinking. Boards are doing more work on human capital management, questioning whether organisations have the right culture and are sufficiently agile.
Board members now have responsibilities and pressures (from all sides of society and regulators) that they did not have in the past. This raises a new issue coming under scrutiny - the effectiveness and quality of the dynamics within the board.
"The world has become too difficult to navigate for boards to be compromised in any way"
Many boards are asking themselves how to future-proof the board. Didier believes there are four main areas of board failures. Firstly, classical risks, where organisations are not resilient or prepared and thus not able to pull quickly out of risk situations. Secondly, Didier describes the risk of board failure due to strategic blindspots, including the organisational context and the role the board takes in strategy work. Didier describes a third board risk in the quality of the relationship between executives and non-executives. He outlines the issues of how to foster deep trust while playing clear, distinctive roles, and believes that the board works almost as a team in supporting the executives while knowing when to challenge. The final area of board failure is integrity failure. The ability of the board to develop the capability of its members to have the courage to speak up, which is key.
"The best boards know how to prioritise"
Boards can be easily overwhelmed by regulatory compliance, preventing discussion of the most important topics for the organisation. Prioritisation is key. Today, governance is not just about the board and executives, but also requires the active engagement of investors, owners, and shareholders.