Along with all the upheaval and unpredictability that is affecting businesses in 2020, the dynamics of company boards of directors are also significantly changing. Boards are having to navigate specific challenges as part of the COVID-19 environment as their companies respond to social issues in the U.S. and as their management teams navigate a time of heightened uncertainty. In fact, according to Summit Leadership Partners’ recently released 2020 CEO study, more than 80% of boards are interacting more frequently with their CEO and management teams.
Just as companies need great CEOs and high-performing management teams to be successful, many company boards are expected to raise their game. Next year, we are going to see a stronger emphasis on building more engaged, diverse, and transparent boards. The expectations of board members are changing, the roles of board members need to adapt to the challenges of this moment, and certain aspects of the organizational culture and dynamics that are reflected on company boards are also due for transformation.
Evolution of Boards in 2020 and Beyond
We have identified a few top trends that are driving the changing dynamics of boards and offer our recommendations for how boards can improve their effectiveness and impact.
The dynamics of boards are changing rapidly in several critical ways:
Challenges of the Pandemic
Boards are adapting to the heightened demands of the pandemic. Boards are helping management think about new approaches and processes for aligning strategy, capital, and talent with drivers of long-term value creation. Directors have spent a tremendous amount of time and resources working on leap-frog advancements in technology, data analytics, digitalization, e-commerce, and supply chains. It is easy to see why a PwC survey of board members found that 76% of corporate directors say they are spending more time on their board responsibilities because of the pandemic, and 30% say they are spending twice as much time or more.
Conducting board meetings via remote technology presents new challenges to the board’s interpersonal dynamic. Board meetings on video do not allow for additional time to discuss ideas and/or even socialize afterwards to build effective relationships. Board meetings are now more focused with more concise pre-reads. And meeting efficiency has started to suppress some creative and innovative thinking. As a result, Directors are having more ideation and scenario planning discussions in committee meetings, or off-line. This will need to shift back into the full board meetings in the future.
Turnover Among Board Members
Based upon the plans that boardrooms across the country are currently executing, 2021 will be a year of high turnover in board composition. The need for greater recency of experience with more current issues like digitalization and diversity are a consistent theme. RSR Partners’ 2020 public company board survey found that stewardship and ability to pivot will be the two most sought after characteristics of future Directors.
Increased Need for Diversity
The major social issues of 2020 have placed a great weight on recruiting diverse talent to boards, and companies are more willing to attract younger and less experienced executives to do so.
In addition to race and gender, there is a significant push for generational diversity on boards. As of 2019, only 4% of S&P 500 board members are younger than 50. We expect this figure will increase dramatically in the next couple years as 1 out of 6 new directors were under age 50. Boards need to think strategically and carefully about the issue, as diversity for diversity’s sake can be a troublesome recipe.
More Regulatory Scrutiny
Boards are under a larger magnifying glass: Regulators, shareholders, and stakeholders are paying more attention to how well boards are adhering to their governing principles and fulfilling their fiduciary duties. A positive shift in corporate board mindset is developing where all stakeholders, and not just shareholders, are the focus. Boards are now working closely with their CEO to define their corporate purpose and focus more on ESG.
All the above factors require greater emphasis on the board’s group dynamics and effectiveness. Nominating committees are racing to “refresh” and diversify their perspective.
Do We Have a Problem?
How do you know if your board is functioning well? Here are a few habits of ineffective boards we have observed:
- Do not make time in meetings to discuss the issues that are of most pressing importance to the organization.
- Will not have open discussions around succession planning, even though CEO succession is arguably one of the board’s top responsibilities.
- Will not talk and debate openly about strategy, including critical risk and reward tradeoffs.
- Will not push back against the CEO.
- Are not willing to say “no” to things.
- Are not able to walk away from a deal.
- Form factions on the board – the “old guard” vs the new.
- “Organ rejection” of new board members who bring different perspectives, experiences and/or diversity.
- Do not address the need to change or upgrade board members who add little value or are disengaged.
The time is right to build a better board. Is your organization ready?
How to Improve Your Board’s Impact
Based on our conversations with boards and CEOs, here are a few high-level recommendations to help boards be more effective:
- Embrace and plan for board turnover. Create a heat map of existing and anticipated board needs that strives for diversity in gender, race/ethnicity, industry experience, generations, and perspectives. Have a view and pipeline that looks 2-3 years out (or longer).
- Effectively assess and assimilate your new board members. Even before you make them an offer, figure out the right approach for how to integrate them onto the board.
- Develop and strengthen the board’s group dynamics around communications, decision making, use of remote technology, and weighing different perspectives.
- Conduct annual board assessments. 42% of the S&P 500 conduct annual assessments of the board, committees and individual assessments; it has become an industry best practice. Boards’ annual self-assessments have historically been bespoke, led by the Independent Chair. But this process needs an external point of view for objectivity, feedback/observations, and recommendations.
We are increasingly hearing from board chairs who want to improve the effectiveness of their boards. This happens by achieving the best contributions from each board member, optimizing the composition of the talent and expertise on the board, ensuring clarity and alignment around a clear growth strategy, and improving the working dynamics of the board as a whole. We see this need will be a sweeping trend among boards as we enter 2021.
Dan Hawkins, CEO, Summit Leadership Partners
Dan advises boards, CEO’s, investors and business leaders on strategy execution and value creation through leadership and organization performance. After a successful corporate career, Dan founded Summit Leadership Partners to help growth-oriented companies and business leaders scale and improve performance. Under Dan’s leadership, Summit has become the industry leader for PE investors and mid-cap companies in leadership and organization assessment and performance and has been recognized as one of the fastest growing consulting firms by Inc., Consulting Magazine and Charlotte Business Journal. He partners closely with clients to catalyze change and is an expert in leadership, strategy, assessment, executive and organization development. Dan is a member of several industry and professional organizations, such as the Bloomberg Breakaway CEO Network, Forbes Coaches Council, the International Coaching Federation (ICF), the Society for Industrial Organizational Psychology (SIOP) and the American Psychological Association (APA). He serves on the boards of Clemson University College of Business and UNC’s Belk College of Business, and has authored and presented numerous topics on leadership, organization change, strategy, leading in global contexts, and strategic talent management.
Brett Stephens, CEO, RSR Partners
Brett is the chief executive officer of RSR Partners and leads the firm’s Board & CEO Services practice group. As CEO, Brett has guided the firm to focus on clients who believe that talent is the key differentiator for their success. During his tenure, the firm has continued to build its reputation and impact by providing strategic leadership insights and counsel to the firm’s long-term client partners. Prior to his current appointment in 2014, he was a senior member of the firm’s Board Practice. He is experienced in working with companies globally — from the Fortune 10 to pre-IPO — on highly-sensitive governance and leadership issues. While at RSR Partners, he has conducted a number of significant projects in the industry, including board of directors’ searches for Fortune 50 companies, and CEO and C-suite searches for both public and private equity-backed companies.