3 key traits of effective board in 2023
ESG and tech trends are changing the corporate governance landscape – here’s how boards need to respond.
There is broad agreement on what makes an effective board. It adds strategic value. It has a balanced approach to risk. It fully understands its roles and responsibilities. These things will not change.
But that doesn’t mean boards should ever stand still – and especially not now. Business is changing rapidly, driven by technological, geopolitical and environmental social, and corporate governance (ESG) trends that are transforming the landscape. Boards need to change too, developing new characteristics and knowledge that will help to adapt to this new reality.
With this in mind, we’ve put together the three key traits we believe boards will need to develop and nurture in 2023.
1: Strong awareness of environmental, social and corporate governance issues
Right now, boards are coming under increasing pressure from investment groups that are scrutinising ESG corporate governance performance and action on climate change.
Boards recognise the issue too. According to a report from InterSearch and the Danish Professional Directors Association, directors think that climate change is the ‘megatrend’ that will have the most impact on societies and the economies over the next three years.
The turbulence in energy prices and supply, triggered largely by the war in Ukraine, also means organisations need to move more rapidly away from their reliance on fossil-based sources of energy. This will be a vital component of their ESG corporate governance strategies - the key factor that will help them to continue operating effectively.
The effective boards of the future will need to urgently address any shortfall in understanding on these issues. 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, actionable leadership, around what is likely to become organisations’ most important issue over the next decade.
Questions for the board to consider:
- Are we able to represent investor interests in climate change action and balance them with the needs of the business?
- Are we proactively embracing fast-changing climate change demands rather than being reactive to regulation and compliance needs?
- Are we able to demonstrate how we are managing energy supply risk as part of our strategy for business continuity?
2: Comprehensive understanding of digital issues
In 2022 a Gartner survey found that 86% of boards currently rank digital business within their top five priorities. Their concern is being accelerated by the potential of technologies like Artificial Intelligence and the Metaverse to transform how people work, play and socialise. Boards need to have a deep understanding of the potential impact of these developments, including the implications for both security and the competitive position of their organisation.
Forward-looking boards will also examine the development of new green technologies that can reduce both costs and carbon emissions. In particular, they will assess the competitive risk of not being aware of the opportunities these new technologies provide.
Board chairs and directors need to ask themselves several key questions related to tech issues to provide effective board leadership:
- Do we understand the risks and opportunities around new forms of technology?
- Can we use new technology to positively impact our ESG and corporate governance performance?
- Do we have plans in place to mitigate security risks related to new technologies?
Boards adapting to the modern age also need to transform their own ways of working through digital – for example, by replacing paper-based processes or ad hoc applications with dedicated board portal software. Find out more in our blog; What is a board portal?
3: Boards will need to become more diverse
Diversity on boards is an issue that has been around for a while. The time for real action is now. Pressure is growing from regulators in particular. Earlier in 2022, the Financial Conduct Authority in the UK said that organisations need to declare whether they have met specific board diversity targets in their annual financial reports. These targets include having at least 40% representation of women and one member from a minority ethnic background
In Norway there is already a regulation that requires at least 40% of each gender on company boards. There are similar movements around the world.
The most successful boards of the future think carefully and proactively about how they meet these rising expectations and demands.
Questions for the board to consider:
- Are we canvassing an extended pool of candidates from a wider age range to achieve more gender and ethnic diversity?
- Do we have a broad enough social perspective to meet modern environmental, social and corporate governance challenges?
- Does our current board fully support and back diversity issues?
Find out more
Moving forward, the most valuable and sought-after board members will develop their understanding of these critical areas to ensure they can provide effective corporate governance and strategic support.
Discover more on the changes that are impacting the way boards carry out their corporate governance role in our new eBook: The boardroom in 2023: Five trends that boards need to respond to now.