EY’s latest whitepaper looks at the key actions boards should take now to ensure they set the pace—or risk falling behind.
To excel at any pursuit, you need to follow a fitness programme. This is no different whether you are an elite athlete or high-level business executive. But crucially, at a time of rapid advances in technology and market transformation, business executives need to be fit for the future, not just for the present.
And this is perhaps most important for members of the board, those that are charged with the oversight of the business. In a technology-enabled transformative age, boards need to not only keep pace but to set the pace. They need to be future fit.
This is the argument EY puts forward in its latest boardroom report, Setting the Pace or Keeping Up—Is your Board Future Fit?
The report sets out a six-point programme that will not only test board directors’ fitness today, but also create an environment where that fitness is ensured for tomorrow.
The report needs to be seen in the context of transition—and it is not just technology that is transforming the business landscape. Environmental issues are of great concern to today’s board directors, alongside demographic and geopolitical changes, as revealed in surveys from organisations such as the World Economic Forum. While technology is enabling great transformation, these other issues are forcing businesses to wake up to the transformation that is being forced upon them.
Highlighting how a significant percentage of companies that were at the height of their success a few decades ago have now declined or disappeared completely, EY suggests that the ones that are still going strong today are largely here as a result of adaptability and an ability to shape the future. As the report says: “Technological, geopolitical, demographic and environmental changes require boards to do the hard work needed to guide their companies to seize the upside of disruption, manage risk and optimise performance.”
So, what does a future-fit board look like? EY has identified a number of traits against which boards should measure themselves. Future-fit boards are forward-thinking and proactive in collecting perspectives that impact the business. They are diverse by nature, inclusive and able to navigate the provocative and the unexpected. They are outward-looking and show leadership in balancing interests for the long term. They are transparent and responsive. They are innovative and see value in their oversight of their people and culture. And they have a wide view of risk with technology-enabled compliance, monitoring and risk mitigation.
As the Harvard Business Review found in its 2018 study of the UK’s longest-lasting organisations, the ones that have stood the test of time are those that focus not just on “serving customers, owning resources, being efficient and growing” but “try to shape society, share experts… and focus on getting better, not bigger”.
Above all, EY believes that a board should have a clear concept of its purpose—it is this that will give it a path through these uncertain times. This, EY argues, will help boards build trust among its varied stakeholders, strengthen their vision and focus and create an agile ability to innovate during times of transformation.
From this analysis, EY sets out actions that will lead to a future-fit board. Directors need to gather new perspectives from their shareholders and wider stakeholders; they need to revitalise board dynamics; increase focus on the long term; adapt communication and protect reputation; align and monitor board and organisational culture; and enhance their risk and compliance oversight.
Boards must guide their conversations with investors to focus on strategic issues and the metrics most reflective of long-term value.
Taking the first of these action points, EY argues that to receive the quality and breadth of insight needed in today’s environment, future-fit boards ask the right questions. And then they analyse the answers and prioritise the data to ensure relevance and importance. Are boards talking to the right stakeholders, making use of their perspectives, reviewing the types and sources of data, and then educating themselves about future risks and opportunities?
As Ken Williamson, partner and EY UK Corporate Governance leader, says: “There are so many different types of investors and it’s important to be proactive in understanding what interests them and how they and other stakeholders are assessing your performance. Boards must guide their conversations with investors to focus on strategic issues and the metrics most reflective of long-term value.”
Board dynamics then come under the spotlight. Who do you need in the boardroom to optimise performance now and for years to come? Future-fit boards consider their composition in the context of long-term strategy and the need for challenge, reinvention and adaptation. It is a balancing act, but one that must be carried out in order to ensure constant revitalisation.
As Joanne Henstock, executive director and EY Africa Corporate Governance solutions leader, says: “Experienced, seasoned directors are a font of incredible wisdom and foresight, and their contributions are enhanced by the addition of younger, newer board members to equip the board to deal confidently with the full range of board matters, including technology effects.”
The issue of long- versus short-termism is never far away from the boardroom. EY highlights this in its third action point, observing how a recent study carried out in conjunction with the Coalition for Inclusive Capitalism found “the best businesses are defined by more than their short-term profitability. They drive broad-based prosperity by creating value for shareholders, customers, employees, and society alike.”
Board members should not be afraid to commit to the long term. In a recent EYQ survey, 42% of global board members felt that investors would support long-term investments that improve long-term business prospects even if they diminished near-term financial performance. But the same survey revealed that in fact 60% of investors would support this type of long-term decision-making.
There is a feeling, however, that although boards are committed to this long-term view, they may not be articulating it. Which leads on to the fourth action point: adapt communication and protect reputation.
Future-fit boards recognise that companies can fail if they say one thing and do another; that to maintain trust with stakeholders, action must align with purpose. EY has found that more than half of global chief executives are constrained in speaking out about global challenges by their boards. As Edelman’s Trust Barometer indicates, this leads to the conclusion that future-fit boards recognise the value that can be unlocked from increased trust, loyalty and commitment from employees and other stakeholders.
Future-fit boards send a strong message and clear tone from the top about culture
Board and corporate culture will always play a role in such programmes, so the next step is to ensure that boards align and monitor their culture. As EY says, culture is a strategic asset and future-fit boards are focused on understanding and monitoring the metrics that best reflect the alignment of the company’s culture with long-term strategy. EY’s Rani Doyle, executive director, EY Americas, Center for Board Matters, confirms this: “Future-fit boards send a strong message and clear tone from the top about culture. They are rigorous and creative in finding ways to measure and monitor the alignment of culture with strategy and the impact of culture on corporate behaviour and engagement.”
Finally, risk and compliance are never ignored by a future-fit board. Forward-thinking boards will already be on top of the impact that technology is having in the world of compliance and risk oversight. But, as EY points out, there is more that can be done: “One of the shifts required is to develop new competencies of finance, risk and compliance professionals as well as of boards and audit committees.”
To gauge whether your own board is future fit, ask the questions that EY poses, analyse the answers and build your own programme to future fitness. Only then will you know whether you are fit to just survive or fit to thrive.
Click here to read the full EY whitepaper.
The article was first published in Board Agenda