What Makes An Effective Board Of Directors In A Post-Pandemic World?

Group of board members sitting around a table

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11 October, 2022
Blog | Board Performance
Article by: BoardClic

The COVID-19 pandemic was a world-changing event. It has revolutionised how we work, socialise, shop, travel and more. Some businesses flourished, such as the video conferencing providers whose services allowed people to connect digitally when they couldn’t meet physically. Others, of course, struggled. Coronavirus also adjusted the way the business world works at all levels, including the boardroom. The answer to what makes an effective board of directors will be different today from the answer that might have been given pre-COVID, for example.

What BoardClic has found from working with our partners across a range of industries is that boards work less now. One explanation for this phenomenon could be increased effectiveness in their operations. For example, many chairs delegate procedural matters to their vice chair, freeing them up to tackle their other tasks.

This article explores how your board can adapt to life after the pandemic and flourish in what is now termed the “new normal”.

 

 

How the pandemic influenced boards

Paul Anthony of Grant Thornton writes about how the pandemic affected boards and businesses in general. He talks about the speed with which companies were able to make changes in order to ensure operational continuity. But, he says, that meant that some governance and process factors had to take a back seat.

Anthony says “the sacrifice in governance created internal tensions. There were many instances where the defined process was not followed, and risk appetite in change delivery was exceeded.”

There was a lot for boards to consider as the pandemic took hold. Fortune illustrates some of the drivers of change that the boardroom had to tackle:

Helena Wayth, CEO of sustainability consultancy A Bird’s Eye View, writing for the World Economic Forum, reports that a majority of board members felt the pandemic would change the roles and responsibilities of corporate boards. She puts that down to three ways in which directors are reconsidering how they work. Her report says these adjustments are:

“First, in the context of oversight and strategy; second, in terms of operational resilience and long-term sustainability of business models; and thirdly, how they can satisfy a broader set of stakeholders and build a more inclusive economy, supporting the shift to stakeholder capitalism.”

In addition, board meetings went either fully virtual or adopted a hybrid model to allow directors to distance and join in events whilst isolating or subject to travel restrictions.

 

 

What makes an effective board of directors?

Diversity

There has been a particular focus on diversity in terms of ethnicity and gender as a result of the Black Lives Matter movement and #MeToo, but board diversity extends beyond that. It also encompasses age, skill sets, experiences, background, location and much more.

ACCA states that “board diversity aims to cultivate a broad spectrum of demographic attributes and characteristics in the boardroom.”

A more diverse board brings more fresh perspectives on tackling problems and creates bold strategies to drive the business forward. That’s why your board composition makes a real difference. BoardClic found that the top 10% best performing boards consistently display a high score in board composition. This makes it imperative that boards understand where they stand on diversity and in which direction they need to move to aid the balance and effectiveness of the board.

One of the benefits of businesses embracing virtual meetings and collaboration in the wake of COVID-19 is that you can cast the net wider to find directors who will fill the gaps in your board composition without having to consider their commuting distance.

 

Independence

Although some industry leaders, such as the CFA Institute, advise that boards should have an independent majority, this is far from a universal truth. The optimal proportion of independent board members depends on your business circumstances, where you are in your market life cycle, your niche and other related factors.

A board does need members who can avoid conflicts of interest and are not afraid to move away from the received wisdom of the business. At a time of crisis, such as the recent pandemic, being agile and flexible is essential to taking on new challenges and succeeding.

Even post-pandemic, the challenges of ESG compliance and new tech developments require independence of thought to inform strategic decisions that are in the best interests of the company and its investors.

However, you must take great care in recruiting independent board members. This involves detailed outlining of roles and requirements and seeking out candidates with sufficient gravitas, as well as the background and personality to suit the company and its board.

 

Individual accountability

One way of delivering independence is to instil the notion of individual accountability in board members. If directors are accountable for their own decisions and actions, they are more likely to challenge the board if they disagree with the business’ direction. By contrast, this is less likely to happen in a culture of collective accountability where it is easier to sit back and stay quiet even if the director disagrees with the majority.

Individual accountability is becoming a regulatory requirement around the world, with legislation mandating companies, particularly in the financial industry, to instigate it. Here are a few examples:

 

Country

Legislation

Australia
Hong Kong
Ireland
UK

 

 

Long-term vision

FCLTGlobal found that companies with a long-term vision outperform their short-term rivals on both financial and non-financial metrics and with less volatility. This culture can and should be driven by the board of directors.

Although many boards tend towards short-termism, often based on the necessity of dealing swiftly with compliance concerns, market drops and activist investors, Ariel Fromer Babcock of FCLTGlobal argues that a long-term vision actually works in the board’s favour.

She says “building a strong board with a committed long-term focus can help insulate companies from some of those short-term concerns. For instance, boards with an established record of long-term leadership will find more allies in a fight against activist shareholders and have more credibility when claiming that a dip in earnings is likely to be short-lived.”

During the COVID-19 pandemic, the boards with a long-term vision were more able to be resilient when faced with the resulting short-term volatility.

 

Robust succession planning and onboarding processes

Succession planning for your leadership roles is essential if you are to facilitate smooth transitions that maintain the momentum of your board and, therefore, the company. The COVID-19 pandemic has created even more urgency for directors to ensure their succession protocols are as robust as possible.

Coronavirus showed us that the likelihood of directors suddenly not being able to carry out their duties was very real indeed. Had CEOs, board chairs and other senior executives been taken ill or even died in post, those boards that took succession planning seriously would have had an advantage over their peers who did not.

Having a strong bench ready to step into your senior roles means that you do not need to worry about how the board will function effectively in times of crisis. And fine-tuning your onboarding processes to help new board colleagues hit the ground running is a natural extension of this.

 

Regular evaluation

Of course, you need some way of measuring how your board is performing in these important areas, and that is where regular board evaluations come in.

Through regular evaluation of your board, you can measure performance against your own benchmarks and those of your peers. It helps you identify skills gaps, create an open and transparent culture, clarify strategic objectives and align the board as a whole with the CEO.

A board that continually evaluates itself is one that is committed to improving and fine-tuning its functions for the benefit of the company and its stakeholders.

BoardClic’s Board Evaluation platform makes this task quick and effortless. Our library of best-practice questionnaires provides a variety of online content to fit every organisation and industry. You can combine it with your interview questions to really get to the heart of evaluations. The easy-to-use dashboard suggests survey questions that are proven to elicit useful responses from directors. BoardClic creates interactive, customisable reports to allow you to visualise the data you capture in a way that helps you take action and make real, positive differences to the way your board works.

 

 

Challenges to board effectiveness

Lack of clarity

Without clarity over roles within the boardroom and of the board itself, directors can struggle to work effectively. Make sure that board members understand why they are a part of the board and how they can contribute most effectively to a higher board and business performance.

 

Poor culture

Erik van de Loo, INSEAD Affiliate Professor of Organisational Behaviour, and Jaap Winter, INSEAD Visiting Professor of Corporate Governance, wrote that “the importance of having a strong corporate culture has been well documented. From upholding ethics to driving innovation, organisational performance can be very much influenced by cultural aspects, such as values, mission, communication and the prevailing organisational atmosphere.”

Failure to devote enough time to developing this positive board culture can be detrimental to the effectiveness of the board.

 

Lack of alignment

To be able to sell a company strategy and work towards goals efficiently, there needs to be aligned within the boardroom on the direction of travel. Without this, board members will be pulling in many different directions, causing the business to lose focus. It is only natural that company performance will drop in such an environment.

 

Poor team dynamics

A corporate board is a team. It may be filled with diverse individuals who take individual accountability, but in order to reach effective decisions, the component parts must be able to work together. The board must be respectful even in disagreement and be able to amicably reach a consensus. This can occur only by creating the right dynamics when recruiting individual board members.

 

Lack of training

Continuous improvement should be the watchword of effective boards. There is always an advantage to be had in adding new skills and brushing up on existing competencies. A board that doesn’t indulge in training will stand still, and that is not beneficial to the company.

 

 

FAQs

How important are independent directors?

Having independent directors on the board provides reassurance to investors that there is someone who is able to challenge the potential status quo of the “insiders”.

 

How often should you evaluate your board?

An annual board evaluation provides an ideal window in which to monitor effectiveness and make necessary changes in good time. In the event of a major issue such as COVID-19, you might want to evaluate again after the initial storm. This will enable you to check that you are on the right track to emerge from these extraordinary circumstances in the most productive manner possible.

 

How can you measure board effectiveness?

Regardless of the tools and processes you may use, strive to measure board effectiveness with a data-driven approach. This is the most reliable way to know where your board stands.

 

Conclusion

Although COVID-19 provided some stormy times for businesses, it has taught us a number of lessons that we can take forward. The pandemic may well have shifted the traditional definition of what makes an effective board of directors, but it has also given us the tools we need to improve and develop boards so that they are prepared for other extraordinary occurrences in the future.

To make sure your board is moving in the right direction, use BoardClic’s Board Evaluation platform. Besides creating questionnaires effortlessly, you will also gain access to benchmark data to measure progress internally and against your peers. Request a demo for your business today.

 

 

References and Further Reading