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Business boards are slowly evolving. According to Corporate Board Practices at Russell 3000 and the S&P 500, the average length of time between U.S. public companies for seated directors is 9.7 years for the largest companies in the S&P 500 index, and only slightly lower (9.5). years) between the Russell 3000 index.
Statistics collected by international executive research firm Heidrick & Struggles indicate that only 425 Fortune 500 CEO positions were filled in 2021, accounting for less than 8% of the seats of these companies. With a limited opportunity to do so, these figures reveal how important it is for councils to take advantage of new appointments to bring new insights, insights and perspectives.
We live in a time 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 need to do more than drive the tide of change; they must anticipate and prepare for the demands and responsibilities that the future will entail.
Just as companies are looking at every part of their business, so are the boards thinking about the future of work and related priorities. Fostering corporate resilience remains a key priority, along with retraining, resource allocation, sustainability and equity.
Traditionally, boards tend to focus more on fiduciary, risk and financial investment oversight. As they move beyond these areas, it is to address more controls and balances such as CEO compensation and greater independence from non-executive directors.
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Boards are increasingly looking to add members with skills that can help them lead their businesses through current challenges, such as Covid-19, the development and implementation of talent strategies, and digital transformation in the whole company, and lead the organizational change. An information security director (CISO) or a 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 incorporate values such as responsibility and sustainability.
A human resources director (CHRO) brings experience to attract and retain diverse talent, as well as the effectiveness and efficiency of engineering in increasingly remote jobs. As companies emerge from the Covid-19 pandemic, they are discovering that CHROs are also in a unique position to help increase resilience by rethinking processes in three key areas: identity, agility, and scalability.
Change of composition: diversity of thought and diverse demography
A diverse board should also include a mix of genders, ethnicities, and ages. Under Bloomberg law, as of 2020, only 20.9% of Fortune 500 board seats were held by white women and 5.7% by black and Latino women. In 2021, S&P 500 companies tripled the proportion of new directors who are black and doubled the percentage of Latinos. However, almost 80% are white and about 70% are male.
Board-level diversity is not only good for an organization’s culture, but also for its results. A recent study found that the benefits of a diverse board helped organizations stay profitable during the Covid-19 pandemic. Not only that, boards with a wider range of perspectives benefit from more diverse thinking, higher conversational quality, and deeper vision.
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The boards need to get the conversations right
The ability of a board to lead five, 10, or more years in the future will directly affect the conversations that take place now. While compliance-based conversations are necessary, they should not be the norm. Agenda topics need to be broadened to include more strategic, forward-looking conversations, including the long-term global economic, economic, technological, social, geopolitical, and demographic trends that are continually reshaping our world.
Given the short-term duration of most CEOs and executive teams (especially with technology companies), the board usually has the best visibility on the company’s long-term growth and path.
Companies will benefit more from a diverse list of board members; however, many board functions are often filled through personal networks. This practice is a slippery slope that can lead to short-sightedness when filling board seats, rather than designating more strategic visionaries and invoking reflection that can provide unique or expansive approaches and opinions.
Another option for creating more productive conversations would be to hire external experts or set up an advisory board to provide an external perspective on the proposed initiatives. While an advisory board would have no governing power or fiduciary responsibility, its thought leadership could have a powerful influence on the direction of a business.
Boards should also broaden their understanding of critical issues by visualizing first-hand operations and connecting less formally with employees and senior management to learn more about culture.
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Tips should elevate the purpose
ESG and sustainability are no longer niche issues. They have become widespread and cover a wide range of issues, from climate change to fair trade and executive compensation. The board of the future faces the challenge of committing to these issues in a way that communicates to employees and external stakeholders that the company is committed to balancing profits and purposes.
One of the ways the board can do this is by developing methodologies that weave the mission, values, and purpose with sustainability and ESG into the day-to-day operations of the company. When efforts to align operations with values can be quantified and tracked, and progress (or areas that need to be worked on) can be reported to internal and external stakeholders.
Too many companies remain short-sighted in terms of ESG, which is the new competitive advantage. They have not yet realized that employees, investors, customers, regulators, and society at large expect a business to be not only profitable, but also sustainable. Most research on this topic indicates that raising the ESG positively affects an organization’s financial performance.
The purpose, sustainability, training of the culture and safeguarding the reputation must be incorporated into the company’s strategy and the role of board member to support and make the executive team responsible. Businesses are evolving in response to broader patterns of dynamic social change, which are continually shaped by new generations and their beliefs and behaviors. Councils must accept these changes and develop the ability to flex and adapt to stay fit for the purpose.