What Will the Corporate Board Look Like in the Next 5 Years?
The board of the future will look a lot different as our society pushes for more diversity, a purpose-driven culture, better corporate reputation, sustainability, talent and resilience.
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Corporate boards evolve slowly. According to Corporate Board Practices in the Russell 3000 and S&P 500, the average tenure among U.S. public companies for seated directors is 9.7 years in the larger companies of the S&P 500 index, and only slightly lower (9.5 years) among the Russell 3000 index.
Statistics gathered by the international executive search firm Heidrick & Struggles indicate that only 425 Fortune 500 new director seats were filled during 2021, representing less than 8% of the seats in those companies. With limited opportunity to do so, these numbers reveal how important it is that boards leverage new appointments to bring in new expertise, insights and perspectives.
We are living in times of exponential change. The breadth and pace of change has created a volatile, uncertain, complex and ambiguous environment. To stay relevant and effective, corporations and their board of directors must do more than ride the wave of change; they must anticipate and prepare for the demands and responsibilities the future will bring.
Just as companies are examining every part of their business, boards also are thinking about the future of work and related priorities. Fostering corporate resilience continues to be a key priority, along with reskilling, resource allocation, sustainability and equity.
Traditionally, boards tend to be more focused on fiduciary, risk and financial investment oversight. When they move beyond those areas, it is to address more checks-and-balances like CEO compensation and greater independence by the non-executive directors.
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Boards are increasingly looking to add members with skills that can help them steer their companies through current challenges, such as Covid-19, developing and implementing enterprise-wide talent strategies and digital transformation, and leading organizational change. A Chief Information Security Officer (CISO) or cybersecurity expert ensures that the substantial risks posed by internal and external digitization are managed. An Environmental, Social and Corporate Governance (ESG) professional guides efforts to embed values like accountability and sustainability.
A Chief Human Resources Officer (CHRO) brings expertise in attracting and retaining diverse talent, as well as engineering effectiveness and efficiency in workplaces that are increasingly remote. As businesses emerge from the Covid-19 pandemic, they are finding that CHROs are also uniquely positioned to help increase resiliency by rethinking processes in three fundamental areas: identity, agility and scalability.
Composition change — diversity of thought and diverse demographics
A diverse board also must include a mix of genders, ethnicities and ages. According to Bloomberg Law, as of 2020, just 20.9% of Fortune 500 board seats were held by white women, and 5.7% were held by Black and Latina women. In 2021, S&P 500 companies tripled the share of new directors who are Black and more than doubled the percentage who are Latino. Still, nearly 80% are white, and about 70% are men.
Diversity at the board level is not just good for an organization's culture, but also for its bottom line. A recent study revealed that the benefits brought by a diverse board helped organizations to stay profitable during the Covid-19 pandemic. Not only that, boards with a broader range of perspectives benefit from more diverse thought, higher quality of conversations and deeper insights.
Related: Increasing Gender Diversity At Workplace
Boards need to get conversations right
A board's ability to lead five, 10 or more years into the future will directly impact the conversations occurring now. While compliance-based conversations are necessary, they should not be the norm. Agenda topics must expand to include more strategic, forward leaning conversations, including the long-term global, economic, technological, societal, geo-political and demographic trends that are continuously reshaping our world.
Given the short-term tenure of most CEOs and executive teams (especially with tech firms), the board usually has the best visibility into the company's long-term growth and path.
Companies would benefit most from a diverse roster of board members; however, many board roles often are filled through personal networks. This practice is a slippery slope that could lead to short-sightedness when filling board seats, rather than appointing more strategic, thought-provoking visionaries who might bring unique or expansive approaches and opinions.
Another option to engineer more productive conversations would be to engage external experts or establish an advisory board to provide an outside perspective on proposed initiatives. While an advisory board would have no governing power or fiduciary responsibility, their thought leadership could have a powerful influence on a company's direction.
Boards should also broaden their understanding of critical issues by viewing operations firsthand and connecting less formally with employees and senior management to learn more about the culture.
Related: 5 Big Mistakes Companies Make When Tackling ESG
Boards need to elevate purpose
ESG and sustainability are no longer niche topics. They have gone mainstream and touch on a wide range of issues, from climate change to fair trade to executive compensation. The board of the future faces the challenge of engaging with these issues in a way that communicates to employees and external stakeholders that the company is committed to balancing profit and purpose.
One way the board can do this is by developing methodologies that weave mission, values and purpose with sustainability and ESG into the company's day-to-day operations. When efforts to align operations with values can be quantified and tracked, and progress can be reported (or areas that need work can be highlighted) to internal and external stakeholders.
Too many companies remain myopic in regard to ESG, which is the new competitive advantage. They have yet to realize that employees, investors, customers, regulators and society at large expect a business to not only be profitable, but also sustainable. The majority of research on this topic indicates that elevating ESG positively impacts an organization's financial performance.
Purpose, sustainability, culture-shaping and safeguarding reputation have to be built into company strategy and into the board member role to support and hold the executive team accountable. Companies are evolving in response to the wider patterns of dynamic societal changes, which are continuously shaped by newer generations and their beliefs and behaviors. Boards need to embrace these changes and develop the ability to flex and adapt to stay fit for purpose.