Traditional governance is feeling the heat. A recent study poses the question — are the boards of the future being held back by the baggage of the past?
“The problem, it appears, is that traditional, 20th-century governance models are not fit for purpose in today’s volatile, uncertain world,” says the EY Global Centre for Board Matters, launching its 2021 Boards of the Future report.
In collaboration with Dr Dean Blomson, EY interviewed board directors and non-executive directors, along with CEOs and CFOs, from 64 publicly listed companies and 29 private companies in Australia, conducting nearly 100 interviews in late 2020.
EY found that in order for boardrooms to be fit for a more uncertain future, fundamental changes to operations, mindsets and personnel will be required. The research also identified four challenges that survey respondents believe need to be addressed, these included:
Growing regulatory and risk burden: Risk, compliance and regulatory overload are distracting boards from strategic conversations that add real value. An increased threat of personal risk exposure also means Australian boards may struggle to attract top talent.
Outdated operating model: “High-touch, low-tech” boards face mountains of historic data and content with limited use of digital tools to interrogate and unlock value from their data.
Looming gaps in skills and behaviours: Most boards have an emerging gap in digital literacy, as well as in “soft skills”, such as behavioural science, which are critical to successfully running today’s organisation.
An identity crisis around stakeholder priority and ESG: Boards are working out how best to meet public and investor expectations on sustainability and long-term value, and to square this with short-term demand for earnings.
Why it matters
An increasing divergence between key stakeholder demands and the board’s ability to respond is evident, says EY. “Despite the current environment, governance structures remain unchanged and this raises serious questions around the continuing viability of traditional governance models,” the report finds. The research shows there is an increase in the proactive targeting of individual directors on certain topics in an attempt to drive their behaviour, and contemplates whether proposed changes to governance operating models may reduce this risk and provide some protection for individual board members.
Questions for directors
EY identifies two areas of focus to help boards adapt to major changes, and questions boards should be asking themselves.
Technology and transformation
- Where can we improve the quality of analysis and critical thinking we apply to our decisions?
- To carry out our core responsibilities more effectively, have we thought hard enough about the delineation of boundaries between ourselves and management? And have we really engaged them in constructive dialogue on this?
- How do we gain and maintain trust in tools, data and relationships?
- Formulating a meaningful, actionable and authentic ESG agenda
- Are we thinking critically enough about what we do as a board and why we do it? Is what we have today best practice or just common practice?
- Based on our organisation’s strategic intent, are we clear as a board on our strategic priorities and parameters?
- As a board, are we aligned with the executive on a common purpose for our current governance model — our “why”?
Board of the future
Without the right skillsets, tools and awareness of the forces reshaping their organisations, board members risk being ill-equipped to help build the enterprise resilience, stakeholder trust and growth mindset critical to building long-term value.
Source: EY 2021 Board of the Future Research
More information can be found here.
Reimagining ways of working
As a board, are we sufficiently differentiated in areas that really matter?
- What are our behavioural blind spots — bias, lack of curiosity, unconventional thinking, excess collegiality?
- As strategy shifts, how does our board ensure culture is redefined to incorporate new behaviours required to drive long-term value and growth?
- In designing our skills matrix, have we thought about how we source and nurture hard-to-find skills needed beyond our one- to three-year plans? And have we considered whether it will still be fit for purpose in 2030?
More information can be found here.
Stuck in the pipeline
What’s going on in senior corporate leadership? Despite more listed company boards cracking the 30 per cent mark and more in the proportion of women directors, the 2021 CEW Senior Executive Census points to falling numbers of women in line management positions, the feeder roles to the executive level and the top jobs. Now in its fifth year, the census (by Bain & Company) of progress of female representation in the executive leadership teams was broadened to include ASX 300 companies.
COVID-19 is considered one culprit, but researchers say there are systemic and cultural issues at play. Census analysis shows correlation between ASX ranking, setting targets and gender balance, says Bain & Company partner Agathe Gross.
More information on CEW here.
Essential director update
The AICD’s annual update for directors on the major legislative and regulatory governance developments shaping 2021–22 will run through October and November in all states and territories. #EDU2021 will feature keynote presentations by Lisa Chung AM FAICD, a non-executive director of Australian Unity and AV Jennings, and David Thodey AO FAICD, chair of CSIRO, Tyro and Xero, plus panel discussions and member Q&As.
Members can attend in person, view the livestream or join a local viewing-event. The event is complimentary for all AICD members.
More information here.
Check your posture?
October is National Cybersecurity Awareness Month. Given the rising risks, it’s a timely reminder to check your knowledge and your organisation’s overall cyber “posture”. The Australian Cyber Security Centre has sector guides and a handy glossary.
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