Warning over boardroom composition as businesses adapt to Covid-19

A report from ecoDa cautions that current boardroom composition may not “respond to the imperatives” of the post-pandemic business environment.

The trials placed on governments, economies and societies by Covid-19 are far from over, but it’s already clear that the pandemic is forcing organisations—and boardrooms—to adapt. One realisation is that current trends of boardroom composition may not be fit for purpose in this new environment.

That’s an observation made by experts brought together by ecoDa, the European association of institutes of directors, as it explored the impact of Covid-19 on boards and their practices through a series of web seminars.

Composition is not a new issue—indeed the experts were of the view that the pandemic has largely served to accelerate pre-existing trends rather than create new ones—but it is an important consideration for boards trying to adapt to challenges brought on by the coronavirus pandemic.

Behaviour and values

A report of the ecoDa proceedings says experts believe boards will need to modify the profiles for chief executive recruitment to ensure corporate leaders fully understand the new environment. But boards themselves may need further work.

“Boards’ composition is also crucial,” the report says. “More than ever board members are needed who can challenge and avoid cognitive bias when making decisions.

“It is not certain that the current composition of most boards is ideal for responding to the crisis. The motivations that supported the current composition might no longer necessarily respond to today’s imperatives.”

It is not certain that the current composition of most boards is ideal for responding to the crisis.

And that’s critical. What many observers have highlighted, including those on the ecoDa panels, is that things are changing and the pandemic has thrown a spotlight on those changes.

Leaders must demonstrate an ability for “emotional intelligence”, the experts concluded, so that they can “pursue a societal mission while making decisions that are necessary for the company”.

“In other words, companies willing to to build their social capital have to show that their decision-making is based on sound ethical and socially responsible principles.”

And this comes with a warning. “If companies’ behaviours are not consistent with their values, their persuasion power will decline and companies will face a societal backlash.”

‘Unprecedented dilemmas’

That’s significant food for thought. And their are further worries to contend with. “Directors will find themselves in unprecedented dilemmas where their business judgment will be put to the test and where they will have to challenge their own assumptions.”

Board members are under pressure. Indeed, ecoDa’s experts wonder if they may need to scale back, limiting the number of boards on which they serve. They have also found themselves closer to operational decision-making, as rapid developments required them “to be available on short notice… and actions taken quickly”.

Non-executives may have found themselves more hands-on, discussing crisis response plans as they evolve in real time.
But that is no reason, the ecoDa’s expect conclude to ignore the “long-term” prospects of their companies.

Non-executives may have found themselves more hands-on, discussing crisis response plans as they evolve in real time.

“Now more than ever, a long-term corona[virus] strategy and reset of the business plan are necessary,” the report says.

Relationships with shareholders may have been changed by the crisis too. In many countries changes in the law have enable companies to cut their formal contact time with shareholders, especially through annual general meetings. But communication with shareholders has remained as important as ever, especially transparency over “important information”.

The dynamic with shareholders may also have been transformed by the entry of debt holders to the stage after companies sought debt to see them through the crisis. That means boards striking a a difficult balance between their interest against shareholder.

“What is crucial within a company,” says the report, “is to remain consistent and to deliver the same message to the different investors.”

The crisis is not over. As it evolves boards will doubtless face new strains and new questions. But as the report shows, board members will need to be flexible and open-minded if companies are to emerge intact.


Author: Gavin Hinks

Original article in Board Agenda website