How can private boards be future-fit?
In today’s rapidly-evolving and disrupted business environment, private enterprises need to be resilient and responsive to fast-changing business needs. Boards and management alike should widen their agenda, and continually embrace transformation to keep their organizations aligned with the times.
The most recent geopolitical, societal and environmental events force companies to rethink their priorities and revisit their current business agenda. Suffice to say, strategies which worked pre-2020 may no longer be effective. That is why private boards must reframe how the future looks like for their organizations.
EY has identified six key actions to test the future fitness of boards and their ability to lead the business.
1. Gather new perspectives by asking the right questions from stakeholders
This helps create a robust dialogue around risk, opportunities, and any impacts on long-term purpose, which enables more informed decision-making. Initiating these discussions with management invites the exploration of alternatives that may not have been previously considered. Inputs from external resources such as business advisors or consultants can be beneficial as it provides new perspectives or provides alternatives to the current problems companies face.
Conversations with stakeholders can give boards a better view of current or potential problems to provide organizations with much-needed wisdom. The better the questions are, the better the answers to be found.
2. Revitalize board dynamics
Diversity and ongoing self-reflection, along with openness to varied inputs, reinvention and adaptation, builds a stronger, more effective board. A reasonable exchange of ideas can provide different frames of reference that are essential to problem-solving. An active board also provokes difficult but necessary questions.
As an example, the Securities and Exchange Commission advocated increasing female representation in the boardroom and that boards should be as diverse as possible, gender-wise. In a study by Harvard Business Review, companies with more than two women on the board outperform others with less in their sector. Clearly, increased diversity in the boardroom has direct benefits for organizations.
3. Increase focus on the long term
While current circumstances have many boards centered on short-term survival, flexible and longer-term strategies based on emerging technologies, trends, new intelligence and industry developments, as well as a clear commitment to putting people first, should also be clearly articulated. Companies are no longer just measured on how well they performed for a year – they are assessed on how well they prepare for the future.
Information about sustainable practices, including environmental, social, and governance (ESG) programs, are a staple in investor briefings for large companies. In the not-so-distant future, corporate communications will include sustainability practices and measures alongside financial metrics.
With the growing significance of sustainability reporting, assurance of non-financial measures is equally important. Private companies may initially look up to their publicly listed counterparts, which are required to report about their sustainability programs (currently under a “comply or explain” basis). Private boards can include ESG matters as a staple boardroom discussion as well.
Future-fit boards are focused on identifying megatrends and guiding management to face new challenges and innovate to seize the upside of disruption. Future-fitness is also about creating an environment for management which provides flexibility to develop better, more innovative business models, new collaborations, and new ways of working, drawing on talent, and incubating new ideas.
4. Adapt communication, protect reputation
To maintain stakeholder trust, private boards need to align purpose with action. Communication must be timely and the division of roles for external communication clearly understood. Private boards can set the tone for the whole organization to follow. The policies and guidelines they adapt and approve for the organization should trickle down through formal and informal communication channels to the staff so that frontliners are equipped with the right information to make the right call.
In the EY Global Integrity Report 2020, only 58% of junior employees, compared to 70% of board members, agree that employees in their organization can report wrongdoing at work without fear of negative consequences for themselves. Management must build the trust of their workforce through the clear communication of values and transparent compliance with the rules, as well as provide secure ways in which employees can voice their concerns.
5. Align and monitor culture
In his book Start with Why, Simon Sinek said that “Cultures are groups of people who come together around a common set of values and beliefs. When we share values and beliefs with others, we form trust.” It is important that boards have a clear vision of the corporate culture, align it with long-term strategies, and monitor said culture using new metrics to view issues from every angle.
Purpose is like a journey, the board and management are pilots and stewards, and the passengers are the employees and other stakeholders. The pilot, the crew and the passengers need to have a common understanding of where their destination is and more importantly, trust that everyone will play their roles in order to arrive safely.
6. Enhance risk and compliance oversight
Taking a pragmatic approach enables boards to gather external insights, deploy monitoring mechanisms, and think more broadly about emerging risks and how to address them.
One of the shifts required is to develop new competencies for finance, risk, technology and compliance. Private boards can organize committees similar to what public companies do to enhance oversight functions of their boards. Private boards may wish to rethink their usual agenda to tackle enterprise-wide risks.
FUTURE-PROOFING PRIVATE COMPANIES
Private companies can become future-proof by reimagining the way things are done and private boards are instrumental to setting that tone. A clear purpose acts as a compass in the journey of an organization to reshape and reinvent itself, setting a clear and inspiring direction that future-fit boards can navigate.
Furthermore, with the right information and the proper tools, private boards can lead the transformations of their companies to the next level and beyond.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Kristopher S. Catalan is an Assurance Partner and the EY Private Leader of SGV & Co.