We are in rapidly changing times and witnessing a shift in the way organisations operate. With the onset of the pandemic, increased regulatory requirements, a raft of strong socio-economic headwinds, internal and external pressures from shareholders and stakeholders, boards may feel they are constantly in crises mode trying to figure their company’s way out. On top of these, boards are faced with emerging risks and considerations such as data protection, technology risk, and ESG. These events are dictating the course of the future and it is important that boards are alert to this. In this article, we will highlight some of the key trends boards and their directors must give attention to in navigating towards the future.
Widening responsibility
The matters for which boards and their directors are expected to be responsible for and those they are responsible for have increased. There is a greater requirement to be more knowledgeable, engaged, and capable. Under the Nigerian Code of Corporate Governance, 2018, the board is responsible for the entrepreneurial and strategic leadership of the company. The board is also responsible for risk management and a top-down approach to setting the company’s ethical standards. Directors of companies are being required to move from being occasional participants, who meet to share experiential insights a few times each year on the board before moving on to the next board they sit on to do the same, to now acting as an additional level of management of their companies.
Under CAMA 2020, a person to be appointed as a director of a public company is required to disclose any other director position held in another public company. Also, there is now a restriction on any person being a director of more than 5 public companies. This indicates a greater focus on board engagement and commitment from the directors sitting on them.
An appointment as a director comes with prestige and perks. However, increased responsibility and potential liabilities have required due diligence for persons offered appointments to boards. In recent times, it has become necessary for directors to require director liability insurance covers upon assuming directorship roles. Beyond personal liability and its attendant costs, which can be ameliorated by insurance, there is a reputational risk that is usually far-reaching and more difficult to recover from.
Beyond statutory responsibilities to their organisations and their shareholders, boards now have to consider the increasing focus on environmental, social, and governance (ESG) considerations, thus increasing responsibility to a wider scope of stakeholders. According to Diligent Insights, ESG performance has been shown to correlate strongly with financial performance; companies in the S&P 500 that ranked in the top quintile for ESG factors outperformed those in the bottom quintile by more than 25 percentage points between the start of 2014 and the end of June 2018. However, because the best practices and required disclosures around ESG are still developing, it can be difficult for boards to be certain about what is good enough, yet it is important that ESG is added to the agenda for board discussions.
Knowledge
The way most corporations are structured, the board may sometimes be the last to know what is going on- and sometimes it might be too late. With technological, financial, and demographical disruptions and crises becoming more frequent now and into the future, it is important that boards are equipped with directors with the knowledge to navigate their companies forward. That creates a higher demand for persons with a clear understanding of the industry, economics, digitisation, strategy, and crisis management to lead changes for boards.
The knowledge of boards speaks to its composition, diversity, access to real-time information that is relevant and accurate as well as training. It is important that the directors on boards proactively seek out events, training, and articles that present opportunities to be abreast of corporate trends and information.
Read also: On the 2022 board agenda
Technology
The ferociously evolving technology and digital landscape have increased pressure points for boards especially as more organizations rely on digital infrastructure for business operations. This is with the attendant risks of phishing campaigns, fraud, and cyber-attacks.
In times past, knowledge of technology for directors was thought of as a ‘nice to have’. Now, it is important that directors are digitally literate. Governance, now and into the future, would require a strong commitment to learning and constant adaptation for boards. It is important that boards are mindful of cybersecurity risks, digital marketing and disruption, utilisation of big data, data protection, and automation and how all these affect the industries in which their organisations operate.
That said, directors are not required to be all-around technology experts but to know enough, be curious, and engaged enough to ask management the right questions and steer the corporate strategy towards optimizing technology in the company’s interest.
Crisis readiness
The last 13 years have shown that regardless of how knowledgeable or strategic a board is, there are matters that are unknown unknowns of the future. The financial crisis of 2008-2009, digital and technological disruptions, and more recently, COVID-19, has brought to the spotlight the roles of boards in crisis readiness. Beyond the externally imposed crisis, a company might experience internal crises such as lawsuits, reputational challenges, cashflow issues, and as have become common in recent times, attrition of knowledge workers in most organizations. It is important that boards are resilient with a robust crises management plan in place for necessary change.
According to Deloitte, it is important that directors can bring valuable crisis management knowledge to the boards as the experiential benefit of having navigated a previous corporate crisis can instill poise under pressure. It is important that crisis management planning is part of the agenda for board discussion without the directors waiting for a crisis to happen.
Conclusion
The stakes are much higher for boards in terms of the trends that should inform their governance functions in driving business performance for their companies. It is important that boards and their advisers proactively consider these trends and seize opportunities of the challenges to innovate towards the future.
