The ultimate guide to effective board leadership in a volatile business climate and the best practice you need to adopt
The key to having an effective board that adds genuine insight and value is to have good board members. But what does it mean to be an effective board member when ways of working are changing so quickly? And what does it mean at a time when heightened geopolitical risk is demanding a new kind of board leadership and company purpose?
In this guide, we will cover everything from the basics required of board members to the knowledge they need to provide effective board leadership in the current climate.
Specifically we will cover:
- the uncertain climate that is driving change at board level
- the issues that today’s board members need to have deep knowledge and awareness of
- the timeless fundamentals of good board director practice and behaviour
- why board directors need to change the way they work in line with modern technology
This guidance should be useful to any board director that wants to review or refine their performance. It also provides a checklist for board chairs or management teams that want to review individual board director performance or evaluate the potential of new recruits.
The uncertain geopolitical climate that is driving change at board level
The ongoing fallout from the pandemic, climate change mandates, campaigns for social justice and new levels of geopolitical uncertainty triggered by the war in Ukraine mean there is now a major drive to adapt board leadership and refine company purpose.
Not surprisingly this has resulted in a lot of recent movement and reorganisation at board level. In the UK, for example, a recent Board Monitor UK 2022 report reported a record number of new appointments to boards of FTSE 350 companies last year.
There is agitation from within boards for change as well. The PwC 2022 Annual Corporate Directors Survey recently revealed that half of directors on corporate leadership boards (48%) would like to replace more than one or more of their fellow directors. Their objective: to drive new diversity of thought and provide a fresh perspective on fast emerging challenges.
The message is clear. There is a strong drive for a change in focus at board level. That means the knowledge, experience and skills it takes to be a board member and provide effective board leadership is changing too.
The most pressing issues that directors need to be aware of to provide good board leadership
Increasing cybersecurity threats
Aside from growing calls for diversity, one of the biggest drivers behind new appointments to boards is the need to expand knowledge and experience of growing cybersecurity threats. These threats have become greater since Russia’s invasion of Ukraine and have resulted in attacks against European energy companies, finance institutions and communications infrastructure. According to the technology analyst group Gartner, 88% of boards now view cybersecurity as a business risk compared to 55% of boards that had the same view five years ago.
It's not sufficient to address this concern by appointing select individuals with experience of cybersecurity. All board members, not just those that sit on technology leadership boards, need to upskill and adopt a new leadership position that is urgently needed to reshape cybersecurity-aware cultures across organisations. Leadership of this kind is crucial to make sure that security isn’t just perceived as a technical policy that all employees need to follow. Today’s board members need to have the knowledge required to implement measures that ensure security is a key part of an organisation’s DNA, its corporate governance and its overall mission and performance measures.
The climate change imperative
When PwC launched its 2022 Annual Corporate Directors Survey it revealed that directors are least confident about their understanding of climate risk and strategy in comparison to the challenges of the day to day running of their business.
62% are confident compared to 92% who are satisfied with their approach to talent and corporate culture.
The recent global crisis in energy prices and supply, the continuing reliance on fossil fuels to meet demand and the issues highlighted by world leaders at the COP 27 summit mean that boards now need to urgently address this shortfall in understanding. If necessary, this will mean seeking external advice from independent standards organisations and regulating authorities. It will also mean educating themselves so they can provide effective and actionable board leadership around what is rapidly becoming organisations’ most important issue – not least because of increasing shareholder engagement and activism related to climate change.
The impact of digital transformation and disruptive technologies
The impact of digital business and disruptive technology is another key priority for directors: as many as 86% of boards currently rank this issue within their top five priorities. Currently their concern is being accelerated by the potential of technologies like Artificial Intelligence to be the next game changer that could transform industries.
Both board chairs and individual directors need to ask themselves several key questions to provide effective board leadership in light of new opportunity and risk related to technology:
- Do we understand the risks around new forms of technology?
- Have we got sufficient controls in place to ensure that machines do not control inappropriate decision making?
- Do we have staff with the right technology and change management skills to ensure we stay competitive?
Today’s board members need to actively develop their understanding of these critical areas to ensure they can provide effective governance and risk controls in a fast-changing digital business landscape.
Talent management and competition for skills
Organisations currently face major challenges related to rises in inflation and increasing energy and operating costs. Equally, the European-wide cost of living crisis and the mass shift to hybrid working mean they also face many issues related to retaining and recruiting the best talent.
Alongside all the other issues on their agenda, this means high-performing board members also need to be fully abreast of the complete HR picture. Most importantly they need to discuss with management how the current market for talent is affecting the company - and in particular, how management is addressing shortages through plans to invest in training, pay and benefits They also need to support management with their efforts to improve diversity in the workforce, including at senior levels, and address equality issues related to pay equality.
The fundamentals of director practice and behaviour that define effective board leadership
Exceptional board members have deep awareness of these urgent issues that are impacting the organisations they serve.
However, they also fully understand and know how to execute their basic responsibilities. There are certain minimum requirements here that are non-negotiable:
Be prepared for meetings
Organisations prepare a package of information for directors before each board meeting known as a board pack or board papers. Board packs typically contain the board meeting agenda, minutes of previous meetings, C Level leadership reports, financial reports, HR updates, board committee reports and any other points for discussion that the executive leadership team has identified as important.
Now more than ever, effective board members take the time to review the information in detail so they are fully prepared for the meeting and ready to add value and insight. The best performing directors will also seek advice and research areas such as the latest cybersecurity threats with which they are not fully conversant. This helps them to make sure they are ready to add input to meeting discussions and not learn ‘on the job’ while the meeting is in session.
Keep to the limits of your role (and don’t try to manage the company)
There is a big temptation for directors who have run their own business (or still do) to overreach beyond their responsibility and get involved in making management decisions. This can be a distraction and a serious barrier to board directors executing their work effectively.
A board director’s job is to advise the CEO and ask searching questions rather than dictate strategy. Board directors perform at their best when they focus on evaluating management proposals with an open mind and help the CEO create new policies. They also draw on their bank of knowledge to advise the CEO of any red flags, alternative approaches they have experienced in the past, or any other ideas they developed through recent learning or research.
Build relationships with other directors and join board committees where possible
Organisations should always fully brief a new director on the workings and intricacies of their business. High-performing directors will also take the time to cultivate relationships with other directors on the board to feed off their experience and develop their own skill set. For example, as is common today, if the board includes a digital transformation or cybersecurity expert, the rest of the board should strive to learn from them so their expertise can inform their own thinking.
Another good way to develop relationships with other directors and get to know the intricacies of the business is to join board committees such as audit, performance and remuneration committees.
Other good practices for board members include:
Attend as many meetings as possible - most boards have policies that state that if board members do not attend a specified percentage of meetings they will be placed under review or barred from voting on decisions.
Learn about the industry not just the business – to be a truly outstanding board member it’s not enough to understand the workings of the business. Effective board leadership also means understanding the industry the business operates within, the risks it faces and what competitors are doing to address those risks.
Don’t overextend yourself – while it is common for board directors to sit on more than one board, the most effective board members don’t over commit and sit on more boards than they really have time for - particularly if this is going to impact attendance or the level of preparation that should proceed any meeting.
The habits that effective board leadership teams need to adopt in line with modern technology
Traditionally, many board members were used to analogue ways of working dominated by face to face meetings, printed board packs and other paper based processes.
Times have moved on fast though and the majority of directors now have the opportunity to use digital tools that help them to make their work both more effective and efficient.
In most cases this means making use of advanced online board portal software. In this final section we will cover how the most dynamic directors use board portals to maximise their performance and keep data secure.
If your organisation has not yet adopted a board portal and is still using an ad hoc combination of collaboration, project management and file sharing applications then we recommend this guide to reviewing your board technology investments.
What is a board portal?
Board portal software provides boards and management teams with a digital platform for document sharing, collaboration, a historical digital archive and access to board documents online and offline. The documents shared and accessed via board portals might include financial reports, budgets, HR updates, corporate strategies, merger proposals, security updates and policy statements. A board portal is a vital hub of communication. It is also a secure repository of confidential information.
You can learn more about board portals in our latest blog ‘What is a board portal’.
How board members use board portals
Some board members, just like any other part of the business community, are still resistant to using digital solutions. However the most effective directors embrace the technology because it empowers them to collaborate more effectively and speeds up decision making.
In particular, they:
- Use portals to access both current and historical information from wherever they are located
- Use ring fenced communication channels within the portal to network with other directors and come better prepared to meetings
- Use E-signatures to sign-off on decisions and provide rapid approval
By making full and correct use of a board portal, board members can more easily address the many issues they face. They can also demonstrate board leadership practice by making sure they are always fully informed when they need to provide counsel or approval on strategic decisions.
How board members use portals to keep information secure
Amid rising global geopolitical tensions, organisations need to protect themselves against a wide variety of cyberattacks from increasingly aggressive sources. According to a recent report by HP Wolf Security these sources include nation states whose “cyberattacks are becoming more frequent, varied and open; moving us closer to a point of ‘advanced cyberconflict’ than at any time since the inception of the internet”.
The issue is particularly urgent for board leadership teams. For a long time, malicious hackers have targeted board directors due to the highly confidential nature of the documents that they work with.
This means that boards don’t just need to consider cybersecurity as part of their corporate risk management agenda. They also need to think about how they are securing their own communication.
Effective board members counteract growing security threats by making sure they use the advanced security features that are built into most board portals and are designed to keep organisations’ most confidential information secure.
These features improve security by enabling directors to:
- Use secure communication channels within the portal so they never share information via insecure channels like email
- Securely store, share and access all current and historical documents
- Sign off board documents securely with E-signature services within the portal (at Admincontrol, for example, we use an E-Signature solution that is supplied by Signicat AS and is part of the EU trust list)
- Restrict access and ensure stringent user verification
- Use Two Factor Authentication for login to the portal to protect passwords from hackers
- Comply with important data protection regulations like GDPR
Security-conscious board members use all these features to make sure they work in line with their organisations secure working policies. By doing so they also demonstrate effective board leadership - showing that the issue is as important to them as it is to the rest of the organisation.
Find out more
There is broad agreement on what makes an effective board. A good board will add strategic value and understand evolving risks. It will be balanced. It will represent and maximise shareholder value. It will fully understand its roles and responsibilities. It will also fully commit to ongoing learning and development.
We have highlighted in this guide that there are also many other ways that individual board members can contribute to these goals through their approach to the role.
If you would also like to explore how using board portal software can further help board members to enhance the way they work - you can get in touch here.
We also recommend this guide to the boardroom in 2023 and the five trends that boards need to respond to now.