H. Pierson

Introduction

The modern era of governance and its handmaiden “compliance” has spawned a plethora of rules and guides about how boards and management should do their respective jobs.

This is fine, but many situations encountered by directors in boardroom settings are not straightforward, nor can they be neatly categorised so that they can be dealt with “by the book.”

This article discusses how chairs should deal with what can often arise in boardrooms, where subjective comments, biased or pre-emptive behaviour and strong personalities can cloud good decision making.

As a corollary, management can be guilty of the same shortcomings, and management reports received by boards can vary greatly in content and format, and on occasion, are characterised by what they omit, as well as what they say. Facts can be in short supply, and opinions can often drive decisions.

The article also question why there is so much variability in board papers, not just between companies, but also within companies. It also looks at how boards of directors can understand and deal with what can be misleading reports with the underlying management behaviour and shortcomings.

Quite simply most of these issues can be put down to the fact that companies are run by groups of unique individuals with a range of personalities and behaviours. A good CEO can get the best out of his or her team, and good chairs can navigate the path towards rational, and evidence-based decisions by the board. However, it is important that the leaders, in this case the CEO and the chair, understand what is going on and have strategies to deal with them.

The board

Much has been written about boardroom personality types and how to build and operate a balanced and effective board, and also about correlating CEO behaviours with success. Understanding what you are dealing with is important, but knowing how to manage these personalities to drive success is also crucial.

To put this into context it would be interesting to know how many company successes and failures are the result of, on the one hand, exceptional individual CEOs, supported by good boards; and, on the other, poor choices of CEOs by incompetent boards of directors?

Changing CEO’s early on in their careers is not a good look but recognising problems early on may make this decision crucial.

Boards are a collective, and consensual decisions are best practice in most circumstances. Agreeing to disagree can sometimes be the only way forward where there are significant differences of view over issues, and where the best outcome for the Company becomes the key driver for the decision.

Likewise, major problems can arise where the board has significant shareholders as directors, who push their personal agendas in preference to the interests of the company. The role of the independent directors is more important in these circumstances and they need to step up and have their voices heard, over what can be dominant and aggressive behaviour.

Management

Boards have more face-time with CEOs than any other management team member, with the exception sometimes of the CFO, who can often double as the record taker, and therefore is generally present for the entire meeting. It is axiomatic that the CEO should preface and present major proposals to the directors, but CEOs vary in their abilities to do this thoroughly and objectively. At one end of the scale CEOs can have an overdose of leadership traits, characterised by hubris; whereas others struggle to present a coherent and persuasive argument, even when important information is available.

With the former, there is one celebrated case where an extremely persuasive CEO was able to convince the entire board of his SOE to go along with his view of the world, and in the process disregarded what were obvious risks, and matters which ordinarily boards would have had have a duty to address and scrutinise. “Black Hats” around the board table can be very challenging for some CEOs, but are a necessary element in board composition and behaviour. Having said that, the Black Hats need to be careful and non-confrontational in putting their views forward.

Management needs to recognise this, and address director’s concerns factually and professionally, even occasionally conceding that there are unresolved issues when seeking decisions.

In the case of an over-assertive CEO, a well-balanced board with an experienced chair will know who they are dealing with; and indeed may have had the responsibility for choosing the CEO — although this is not always the case.

This is why recruitment of the CEO is such a crucial decision, and it is important to know whom you are really employing before it is too late. Thorough due diligence with trustworthy referees can often reveal unsatisfactory characteristics and it is vital that a CEO has integrity, balance and openness in all their dealings with the board. Mutual trust is essential.

Conventional wisdom says that CEOs have a “use by” date and this is often quoted as being seven years, which is also the average longevity of a CEO in New Zealand. Equally some exceptional CEOs grow with the job and the challenge, and they should be supported by their boards and chair to go the distance, providing they continue to grow the company without taking excessive risks.

There are significant differences in approach between management and boards, and how personality and style can impact on company decisions. The board collective, more often than not, has a wide range of competencies, skills, experience and personalities. On the other hand, management can often be embodied in a single individual who has the delegated responsibility to report to the board on behalf of a team of functional managers, whom collectively run the business, operationally and financially.

As we have seen very recently with one of our SOEs, the wrong choice of CEO can lead to the hollowing out of the senior executive team and a huge loss of talent and experience. “Command and control” behaviours are no longer acceptable management styles in today’s world.

Strategy

Strategy formulation is at the intersection between the board and management, which is why good boards share the load with management in this area, and follow good process to ensure there is a high degree of ownership of the final document. Someone once said that strategy doesn’t just happen once a year, and in these uncertain times it needs to be frequently re-visited, and revised if necessary.

It can be tricky when the strategy is not agreed by all the directors, and there have been cases where this has led to “throwing the toys,” and resignation. While understandable, it may be better to stay and see how things play out, and perhaps persuade the board to an alternative view over time.

Key takeaways for boards

Both directors and chairs need to be aware of the influence of individuals and their behaviours in the debate and the discussion which precedes decisions.
Chairs need to know their board members and their personalities. They should be alert to where some directors may choose to take the discussion and be prepared to nudge it gently back on course.
Similarly, individual directors should keep their own counsel and contribute objectively and constructively, particularly when management is present. Enthusiasm needs to be tempered with sound reasoning.
Strategy is about the longer term and tactics are usually short term. Even some directors struggle to know the difference.

Top-5-Ways-to-Improve-Board-Culture-for-Your-Organization.jpg

A board’s culture is reflected in the traditions and habits that boards develop over time that set the standard for the way that board directors think and act. Good governance suggests that boards should enjoy a sense of mutual respect and collegiality. Culture is a fluid concept that grows and changes with time. Healthy, productive boards strive to achieve a strong and connected board culture. Boards should be cautious that culture can also form on its own and the shape that it takes doesn’t always benefit the board. By taking a strategic, thoughtful approach to molding the proper board culture, the board and its stakeholders benefit profusely.

There are distinct steps that boards can take to try to improve their culture. The first step begins with recognizing the importance that a healthy culture can have on an organization. The next step is to evaluate your organization’s current culture and make a conscious decision to work together toward improving it. Your board’s culture should hold an important and periodic place on your board meeting agenda. Creating a healthy board culture isn’t a “one and done” exercise. It’s important to review it and evaluate it periodically so that it becomes a regular goal for improvement.

Recognize the Importance of a Strong and Healthy Board Culture

Board culture begins with a thought or a concept. Building a strong culture requires taking the concept out of the mindset and putting it into practice. The board needs to communicate the desired culture and give it a voice. It starts by the board modeling the culture they want to see. In other words, it requires not just talking the talk but walking the walk.

It’s worth mentioning that boards can have teamwork without having a strong culture. Imagine how much stronger a board can be when it has both. The board gets its authority from the collective nature of the way it makes decisions.

Implement the Characteristics of a Strong Board Culture

While the culture forms as a result of the collective efforts of the board, every board member plays an important role in helping to form it. In order for the board to come together to build their culture successfully, they need to understand their company, their competitors, and the industry space. It’s helpful for managers to offer their perspective of what the culture is or should be. One way to get everyone on the same page with how to define their culture is to put it on the board agenda and discuss it.

Be inquisitive about how your board functions in action. Is there a balance between collegiality and directness? Are opposing views critical or constructive? Do board directors attack issues or each other? Do the majority of board members feel that they can speak to managers with candor? In conducting regular board self-evaluations, are enough of the questions dedicated toward culture? Does the nominating committee consider a board candidate’s views on culture during the interview process? Do candidates share a similar view of culture as the rest of the board?

Revisit the Topic of Culture During Times of Drastic Change

Significant changes within an organization can alter the culture quickly, especially when there are changes in leadership. Changes can affect culture negatively. Substantial changes in an organization can also present new opportunities to transform the culture into new and better dimensions.

Whenever an ethical issue arises, it’s wise to consider if there have been other ethical issues that were minimized or shoved under the carpet. When ethical concerns go unchecked, it bears a strong connection to the culture and signals the need for change.

A merger or acquisition is a major event that can seriously affect an organization’s culture. By working to achieve and communicate a new view of the culture, it shows that the organization is concerned about culture and is willing to give it the time and attention it needs.

The CEO or executive director has a strong impact on the culture of an organization. This is a good thing when the current CEO holds a strong view of the culture and models it well. Culture can become challenging during times of CEO succession. The new CEO will have a strong impact on if or whether the culture changes either positively or negatively moving forward.

Evaluate the Culture at Periodic Junctures

Once an organization achieves the desired culture, it’s important to monitor it. Often, an organization’s culture is only put to the test when it faces a crisis of some sort. A strong and healthy culture provides a good foundation for boards to be able to bounce back from challenges.

Boards can sometimes gauge culture by reviewing key management reports. Reports provide specific data on environmental issues, safety issues, and other concerns. How the board handles those issues can be very telling about the board’s culture.

Risks accompany opportunities. As boards work on risk management issues, it can quickly become apparent how far apart leaders are with their risk tolerance and how well it aligns with their strategy. By recognizing this fact, everyone can begin working toward realigning their perspectives in the interest of improving board culture.

Evaluate Whether the External View of Culture Matches the Internal View

While a board may believe that it is solid on its own view of culture, it’s important to consider whether its culture is strong enough and prominent enough to reflect the same culture outside of the company.

According to a 2015 survey cited by Heidrick & Struggles, the majority of boards appreciate the value of culture, but they don’t believe organizations put it into practice as often as they preach it. The survey showed that 87% of the organizations responded by listing culture and engagement as a top challenge.

About half of the organizations felt that shaping culture was an urgent issue.

Board evaluations may be one of the most viable ways to assess board culture. That’s one of the valuable features of a BoardEffect board portal system. In addition to offering boards the benefit of secure communications and a process for streamlined board meetings, the software has a survey tool built into the platform that’s perfect for doing regular assessments of board culture. With the combination of board director commitment and the right digital tools, organizations can begin enhancing their culture at the earliest possible time.

Author Lena Eisenstein

Organizational capacity is comprised of several elements that, if maintained at optimum levels, enable an organization to deliver against its purpose, mission and promise and achieve its goals efficiently.

However, one powerful element of capacity is often overlooked. If leveraged well, this single element can drive progress exponentially and become an organization’s secret weapon for rising to the top of the competitive heap.

That capacity-building element is the board. Board members bring necessary expertise, networks and funding that benefit every type of organization (private, public, nonprofits, foundations) beyond what internal resources can provide. They also increase capacity at a lower cost than most other capacity-related resources such as employees, equipment and facilities. The cost of capacity resources includes time, and board members bring their own.

During the 2020 pandemic, most boards stopped meeting in person, and some organizations stopped investing in and nurturing their boards because leadership was focused on more pressing issues.

Post-pandemic, these factors have come home to roost as organizations are feeling the effects of a board that is less engaged and, in some cases, not performing as well as it once did.

As a result, many of my clients are seeking new ways to engage their boards and want a refresher course on governance.

But pandemic or not, when boards need to enhance performance and become effective governing bodies, there’s no training for that. What’s needed is development, not merely a workshop or two.

Here are three keys to leading a successful board development effort:

Review Your Board’s Structure

If you haven’t formalized board governance structures like committees, officer succession, nominating and term limits, this is the time to do so.

Governance structures provide guidelines that define how a board should operate which generally improves performance. These structures are interrelated and interdependent with each structure bringing another to the forefront.

For example, meaningful committee work reveals what skills are needed on the board, and understanding the terms of board members and officers allows the board to develop a succession plan and nominating process to accomplish those goals.

Review Your Board’s Practices

Governance structures are necessary for realizing the full capacity of a board, but they’re only as strong as the board’s practices.

Governance practices help ensure accountability for decisions, actions and performance. They contribute to a high-performing board and board culture. It’s important to define these practices and expectations so that a strong board culture develops.

Clearly state expectations for attendance, committee participation and fundraising. Doing so will make it easier for board members to show up and step up.

Focus On Board Engagement

It’s hard to reap the benefits of enhanced board structures and practices without also focusing on board engagement. Engagement doesn’t just happen spontaneously, it must be cultivated and nurtured by leadership. That’s why a board that intentionally works on increasing engagement will have a higher degree of success.

Figure out the rhythm and format for board and committee meetings. Develop creative ways for members to participate, interact and strategize. Build in social events and time for networking. Rally the board around supporting organizational leadership and track board work against the organization’s strategic plan.

These are all important board member responsibilities and ensure the board stays focused on those topics and activities that are most critical to your organization’s success.

Remember that board members who feel connected will be better at supporting the organization and, ultimately, increasing organizational capacity in the ways only a board can.

Author: Ann Quinn

Are you wondering what you can expect from making the switch from face to face to online learning courses? All businesses are having to quickly learn how to harness digital power for training and development more broadly than before.

Can online learning replace face-to-face? What are the pros and cons of deploying an online training strategy? How can you make this transition a sustainable success? Read on to answer these questions and find out the next steps in your own move from face to face to online learning.

What is online learning?

Online training is the process of imparting knowledge virtually. When it comes to online training vs face to face learning, the main difference is where the training takes place. The term ‘online learning’ encompasses all learning that is conducted virtually, in an online setting. It’s basically any type of training that employees can do via a laptop, tablet or smartphone.

What is face to face learning?

Face to face learning is training that is provided in person, whether that’s a one-on-one session or in a group setting. This type of training is generally less flexible than online training, as it’s usually at a set time and place and cannot be accessed on-demand.

Employees are keen to learn

Most employees in recent times have been adapting to cope with the fast pace of modern working life. They are often busy and overwhelmed but still keen to learn; they value high quality content that’s personalized and relevant to their needs; and they are getting increasingly impatient and turned off by content and experiences that aren’t high value, relevant, and available when they want it.

Never has this been more important than now. Modern working life for many has become even more fast-paced and overwhelming. With most of the workforce working from home and companies quickly reskilling and reshuffling roles, it is imperative that your online learning stacks up to expectations and ensures productivity.

Online learning vs face to face learning in the workplace

The biggest differences between online and face to face learning have always been in the realm of fostering connection and collaboration between learners. The loss that Learning and Development Professionals experienced with this abrupt stop of face to face learning delivery is this positive social impact. This is a valid concern. The importance of face-to-face interaction in education, for example, is vital. In-person social interaction has a richness that might feel hard to replicate in the digital world – but, when it comes to the corporate world, it’s not impossible.

These are the top 5 strategic initiatives HR leaders are prioritizing heading into 2023.

To help HR leaders better manage and lead during these times, Gartner conducted an annual survey of more than 800 HR leaders and identified the top 5 priorities for HR in 2023. Top of the list is leader and manager effectiveness, but many HR leaders will also prioritize change management, employee experience, recruiting and future of work.

The top 5 priorities for HR in 2023

HR leaders must manage investments in people and technology, cultivate a positive culture and employee experience, and transform HR to be more automated and digital — all while new employee expectations are impacting retention and attraction. But their survey responses reveal their top priorities are as follows.

Priority No. 1: Leader and manager effectiveness

This is a priority for 60% of HR leaders, and 24% say their leadership development approach does not prepare leaders for the future of work.

As organizations and society evolve, so do the expectations for what leaders are responsible for, making their roles increasingly complex. Today’s work environment requires leaders to be more authentic, empathetic and adaptive. These three imperatives represent a new call for leadership: “human” leadership.

Even though HR leaders try to build commitment, courage and confidence in leaders to help them answer the call, human leaders remain few and far between. Leaders do need commitment, courage and confidence to be effective human leaders; however, HR’s typical approaches do not address the barriers that are holding leaders back. These obstacles include their own (very human) emotions of doubt, fear and uncertainty.

To help leaders deliver on the need for human leadership and prepare them for the future of work, recognize their humanity and directly address these emotional barriers.

Priority No. 2: Organizational design and change management

This is a top priority for 53% of HR leaders, and 45% say their employees are fatigued from all the change.

Digital transformations, economic uncertainty and political tensions have led to much disruption and change. As such, organizational design and change management remain a top priority for CHROs, especially now, as organizations are seeing the fallout of too much change and uncertainty.

Employees are also growing more resistant to change — in 2016, the Gartner Workforce Change Survey showed 74% of employees were willing to change work behaviors to support organizational changes, but that number dropped to 38% in 2022.

Change fatigue has clear ramifications. HR leaders must help employees to navigate change and mitigate the impact that change may have on their work and, more importantly, their well-being.

Priority No. 3: Employee experience

This is a top priority for 47% of HR leaders, and 44% believe their organizations do not have compelling career paths.

Many HR leaders struggle to identify the internal moves that employees must make to grow their careers. In a recent Gartner survey on employee career preferences, just 1 in 4 employees voiced confidence about their career at their organization, and three out of four looking for a new role are interested in external positions.

Typically, career development follows three steps:

Set a trajectory and communicate role benefits and requirements.
Find in-role opportunities for potential new roles.
Identify internal roles to achieve goals.

However, that pathway is less clear now that work experience is changing. Career options are less visible with less time in offices; current skills are becoming obsolete and employees aren’t prepared for future roles, and current options don’t satisfy employee needs as people rethink the role of work in their life. This presents new career imperatives for HR leaders to create best-fit careers for employees.

Priority No. 4: Recruiting

This is a top priority for 46% of HR leaders, and 36% say their sourcing strategies are insufficient for finding the skills they need.

Fifty percent of organizations still expect the competition for talent to increase significantly in the next six months, regardless of broader macroeconomic conditions.

This means recruiting leaders must reprioritize recruiting strategies to align with current business needs, plan for multiple potential scenarios in this shifting market and make decisions with great confidence using data.

Focus on three strategies to support strong talent and business outcomes in today’s market:

Build an intelligence-based sourcing capability.
Create an equitable internal labor market.
Build onboarding for engagement.

Priority No. 5: Future of work

This is a top priority for 42% of HR leaders, and 43% say they do not have an explicit future of work strategy.

The “future of work” continues to be synonymous with a remote and hybrid workforce. But while this shift is a seismic change for many organizations, it is only part of the equation. Workforce planning — anticipating future talent needs — is at the epicenter of a future of work strategy and is a top priority for HR leaders. But today’s workforce planning is disconnected from reality and current strategies are ineffective at combating the disruptive landscape. Think: shifting skills, scarce talent, high turnover and a shift in the employee-employer dynamic.

Instead of assuming we can predict future skills needs, access enough talent, fill future gaps by buying and building, and dictate when and where employees work, we need a new approach that unlocks new strategies.

In short:

HR leaders continue to face an unprecedented amount of disruption.
Gartner surveyed more than 800 HR leaders about their top 5 priorities for 2023.
At the top of their list is leader and manager effectiveness, but many HR leaders will also prioritize change management, employee experience, recruiting and future of work.

Author: Jordan Turner

As a business leader, keeping abreast of the current outsourcing trends will help you navigate the outsourcing ecosystem and adapt to the new normal of the post-pandemic world.

The outsourcing trends in 2022 reflect the changes the pandemic brought to the outsourcing market in the last couple of years. It suggests that businesses must look for providers with high-quality services, aim for high flexibility, and leverage updated technology while outsourcing in 2023.

In this article, we’ll discuss the 13 most crucial outsourcing trends of 2022 that you should watch out for in 2023. We’ll also look at the 5 most outsourced services of the year.

Let’s get started.

Outsourcing trends 2022: 13 key trends to watch out for in 2023

Outsourcing gives companies a competitive advantage by reducing operating costs, enabling staffing flexibility, and saving time.

Because of these benefits, more companies opt to outsource business processes, prompting outsourcing market growth.

Businesses expect to spend over $700 billion annually on outsourcing by the end of 2022. This growing outsourcing industry includes IT (Information Technology), healthcare, accounting, and other sectors.

IT outsourcing spending will be $519 billion in 2023, a 22% increase over 2019’s numbers.
Business process outsourcing (BPO) spending will increase to $212 billion in 2023, a 19% increase over 2019.
The HR outsourcing market will be $19.38 billion in 2023.

However, outsourcing can be futile if you don’t plan it properly.

You’ll need to know relevant outsourcing trends to develop a successful strategy.

Here are a few outsourcing statistics and trends of 2022 that can help you make better outsourcing decisions in 2023:

1. Prioritizing quality

Companies now emphasize providing high-quality services to their customers.

For this, they’ll need skilled employees and advanced technology — which can be expensive in most countries.

As a result, companies are switching to processes such as software development outsourcing, HR outsourcing, business process outsourcing, legal process outsourcing, etc.

According to research from Commit, software development outsourcing will increase by 70% between 2022 and 2023,

Moreover, outsourcing enables companies to offer their clients customized solutions. An outsourcing company is more likely to have the time, expertise, and resources needed to customize solutions than an in-house team.

2. Ensuring business continuity

Companies preferred outsourcing with multiple vendors before the pandemic. But now, most want a strategic partnership with one (or fewer) vendors, as recently reported by the University of Cambridge.

Businesses now believe a strategic partnership with fewer outsourcing companies can ensure business continuity and cost saving.

How?

Frequently changing service providers can disrupt business continuity.

And a company is more likely to build a strong relationship with its outsourcing company when it’s working with the same team for an extended period. A strong bond can increase commitment and trust, which makes reaching objectives easier.

Additionally, businesses can ensure continuity with an outsourcing partner through a more extended outsourcing contract.

More extended contracts can ensure you’re provided services even during uncertain times because you’ll work with a trustworthy outsourcing partner.

3. Wanting business flexibility and adaptability

The Covid pandemic and the resulting lockdowns were chaotic and disruptive. Many countries had a hard time recovering from the short term economic shock. According to Deloitte’s 2021 Global Outsourcing Survey, these conditions are prompting businesses and service providers to become flexible concerning work.

And to match the growing agility demands of companies, an outsourcing provider will need to:

Accept if the company suspends or pauses a project abruptly.
Ensure work is completed before the deadline, even if there are sudden obstacles in the outsourcing destination.
Increase collaborative initiatives.

4. Hiring niche talent

According to a 2022 ManpowerGroup survey, 75% of employers find it hard to find talent in the US.

Most importantly, there is a shortage of talent specialized in new technology. This shortage is the most significant barrier to the adoption of 64% of modern technology used in fields, like network and security, according to a 2021 Gartner survey.

And since it’s time-consuming to upskill in-house teams, companies are outsourcing services to a vendor with expert talent in a desirable outsourcing destination.

By outsourcing to a skilled vendor, a company can instantly access the expertise it lacks in-house.

5. Using modern technology

Companies keeping abreast of emerging technology can use it to automate processes, increase efficiency, and simplify operations.

But software development, automation, IoT (Internet of Things), and other modern technology evolve regularly. It can be challenging to update technology frequently, so companies are outsourcing to service providers.

A service provider is an expert in their specific field. As a result, they’re more likely to update themselves about the advancements in technology than an in-house team.

Here are the most current and trending technologies used in the outsourcing industry:

A. Robotic Process Automation (RPA) solutions

RPA is software development that helps build, deploy, and manage robots to carry out simple tasks.

The demand for robotic process automation is increasing as companies realize it is more cost effective to use robots to perform repetitive tasks.

A 2022 Grand View Research report states that the RPA market size was worth $1.89 billion in 2021.

This market will expand at a compound annual growth rate (CAGR) of 38.2% from 2022 to 2030.

B. Artificial intelligence, machine learning, and automation

Business and outsourcing companies use Artificial Intelligence to automate repetitive tasks, calculations, or replying to messages.

Additionally, Artificial Intelligence helps a provider improve customer service. Chatbots or cloud-based IVR (Interactive Voice Response) are examples of this revolutionary, emerging technology.

A 2022 Grand View Research survey reported that the global AI and Machine Learning outsourcing market size was $93.5 billion in 2021.

The AI and Machine Learning outsourcing market will expand at a compound annual growth rate (CAGR) of 38.1% from 2022 to 2030.

C. Cloud computing

Cloud outsourcing is essential to access other modern technologies like AI, RPA, and machine learning. It also empowers a company to collect and store resources on the cloud and access cloud services.

Companies such as Amazon Web Services (AWS), Google, and Microsoft are investing more capital into their cloud platform and cloud services.

A 2022 Cloudwards survey revealed that the total value of cloud computing and the cloud platform market will amount to $832.1 billion by 2025.

6. Demanding better cybersecurity

Digital transformation can open up several ways for intruders to access inside data.

A Forbes article revealed that 82% of companies faced cyberattacks in 2022. But managing an in-house security team can be difficult.

That’s why companies are hiring a Managed Service Provider (MSP). An MSP is a third-party service provider that manages a specialized operation, like data security.

Companies are handing over cybersecurity to MSPs as they’re more likely to have cybersecurity experts and advanced solutions. The demand for MSPs is so high that it was worth $152.02 billion in 2020 and will grow to $274 billion by 2026, as per Statista.

7. Outsourcing surge amongst startups and small businesses

Outsourcing allows small businesses or startups to access the best talents and tools at economical prices.

These businesses outsource repetitive tasks to save time and money. Small companies are also less likely to have experienced employees due to their limited payroll budget, and outsourcing enables them to access the best talents.

According to a Clutch survey, 90% of small US businesses plan to outsource a business process in 2022, a 10% increase from 2021.

This outsourcing trend will continue in 2023 and disrupt various industries.

8. Favoring nearshore outsourcing over offshore outsourcing

Nearshore outsourcing involves hiring a third party from a neighboring country to complete a business task. On the other hand, offshore outsourcing is outsourcing to a faraway country, usually in a different time zone.

In the post-pandemic world, companies are nearshoring more than in previous years.

According to the Inter-American Development Bank (IDB), nearshore outsourcing will add $78 billion to the export sector in Latin America and the Caribbean after 2023.

Similarly, a 2022 report by Bloomberg revealed that 80% of companies in North America like the United States, were actively considering nearshoring.

This change could be due to the relative comfort of companies’ experience in managing supply chains over a shorter distance and more minor zone differences of nearshore companies.

Additionally, navigating time zones and labor regulations in distant and culturally different countries, such as Malaysia, South Africa, and the Philippines, can be a huge business challenge. Nearshoring may empower businesses to overcome some of these barriers without hurting their bottom line.

9. IT outsourcing to Eastern Europe

Although India and China dominate the IT outsourcing industry, many tech businesses today are outsourcing tasks to Eastern Europe.

According to Statista, IT Outsourcing to Eastern Europe will reach $2.69 billion in 2022.

Companies in North America like the United States prefer East European countries, like Romania, Ukraine, Poland, and Belarus, for IT outsourcing due to their proficiency in English and cultural similarity.

Also, Eastern Europe has a high percentage of skilled people (including tech professionals), affordable talent, and strong data security.

Additionally, the salaries in several countries of Eastern Europe are low when compared to that in other countries, like the USA or Canada.

10. Preferring remote work

Due to the Covid pandemic, remote work has become the new norm.

According to a 2022 study on remote work by SCIKEY, 82% of respondents prefer working from home.

The study further revealed that 64% of employees said that they are more productive working from home and feel less stressed.

This trend is set to continue in 2023 and beyond.

11. Improving customer experience and satisfaction

Customer experience is the key brand differentiator in 2022 and will continue to give businesses a competitive edge in the coming year.

To provide a better user experience, businesses may have to invest in customer support and social media coverage more.

Focusing on customer experience can help companies:

Ease customer acquisition.
Increase customer satisfaction.
Strengthen customer relationships and brand loyalty.

But the unpredictability of customer call volumes can be difficult to manage.

Companies may have to quickly scale up and down and manage the workforce for proper functioning.

This opens up more avenues for outsourcing customer service.

According to the Global Call Center Outsourcing Market’s 2022-2026 report, the call center outsourcing sector will grow by $21.72 billion.

The report also stated that the CAG rate will accelerate by 3.96% during 2022-2026.

Outsourcing services such as customer support improves the customer experience and lowers operational costs significantly.

12. Emphasizing cost reduction

Before the pandemic, companies were moving from cost reduction to prioritizing quality and scalability but that changed with the pandemic.

Deloitte’s Global Survey 2021 stated that 88% of the surveyed companies said cost reduction was now their main outsourcing objective.

Most surveyed outsourcing companies said that although clients wanted agility, scalability, and technology enablement, the reduction of operational costs brought by outsourcing services was the primary decision making factor.

This trend could continue in 2023 while the world economy recovers from the pandemic and recessions.

13. Practicing transparency in workflow

In the past years, most companies had little idea about the decisions made regarding the outsourced project as the outsourcing provider handled it completely. This led to frequent misunderstandings.

However, there’s now a growing demand for transparent communication with outsourcing companies.

A study by the American Scientific Research Journal for Engineering, Technology, and Sciences said that expressive communication is crucial for transparency.

Additionally, a Deloitte study reported that creating an outsourcing contract like an SLA can help increase transparency. An SLA can give your business a clearer idea about the quality of the outsourced work and help enterprises to hold the outsourcing provider accountable.

Now, let’s look at the most outsourced tasks in 2022.

5 most outsourced tasks in 2022

Here are the most outsourced services in 2022:

1. Information Technology (IT)

According to Statista, the IT outsourcing industry is growing at a CAGR of 8.93% and will be worth a market volume of $551,956.3 million by 2026.

Of all the IT services, most companies engage in RPA and software outsourcing.

In fact, the RPA market will be approximately $32.7 billion by the end of 2030.

Furthermore, Latin America is one of the most rapidly-growing regions for software outsourcing. Companies such as Amazon, Google, Uber, and Microsoft are all outsourcing software development to Latin America.

Other IT outsourcing trends include:

Implementation of digital transformation.
Mobile app support and management.
Search engine optimization.
Data center management.

2. Administrative

Commonly-outsourced administrative activities include telephone services, bookkeeping, event management, payroll management, and more.

Companies also hire virtual assistants (independent contractors who work remotely on tasks like scheduling appointments,completing administrative activities, and more).

According to Technavio, the global virtual assistant market size will grow by USD 4.12 billion, at a CAGR of 11.79% between 2021-2025.

3. Business Process Outsourcing (BPO)

Generally, companies outsource a business process such as IT services and human resource management to an external BPO company.

BPO has become the ideal cost-effective solution for companies looking to grow their business. BPO service providers help companies bridge need gaps within their structure and cover additional technical or non-technical business functions.

The BPO solutions industry is one of the fastest-growing industries in the world, with a CAGR of 9.1% from 2022 to 2030 (Grand View Research 2022).

4. Blockchain development

Blockchain development outsourcing is the process of finding an external third-party provider to take on the development and management of your blockchain technology.

Blockchain development outsourcing can be the ideal cost saving solution when a business needs to develop a blockchain product quickly.

The global blockchain technology market size was $5.92 billion in 2022.

The market is also expected to grow at a CAGR of 85.9% from 2022 to 2030 (Grand View Research 2022).

5. Legal process outsourcing

According to American Lawyer Media research, 93% of legal departments rely on several legal service providers to handle a wide array of tasks.

Outsourcing can differentiate your legal department and improve capacity without increasing overhead.

It enables companies to delegate time-consuming and mundane tasks such as document review and contract drafting to an outsourcing service provider.

In house legal teams can then focus on more meaningful work such as mitigating legal risks by designing and implementing suitable company policies and procedures.

The global legal process outsourcing market size was USD 10.77 billion in 2022.

The market will grow at a compound annual growth rate (CAGR) of 30.9% from 2022 to 2030 (Grand View Research 2022).

Wrapping up

Outsourcing has been witnessing several progressive trends post-pandemic.

Studying these trends can guide you to develop successful business plans for 2023. Learning more about an outsourcing trend can also help you handle uncertainties in your business and manage internal stakeholders effectively.

You can go through the top outsourcing trends listed above to develop a strategic plan for successful outsourcing for the coming years.

Use these 10 strategies to attract and retain skilled workers.

Writing good job descriptions can help you find the best employees.
Job seekers want comprehensive salaries and benefits, inclusive company cultures, and ample career development opportunities.
Training management can have a big impact on employee retention.
This article is for business owners and hiring managers looking to attract and retain top talent.

Every business wants to attract and retain the best employees, but this is often easier said than done. A 90% retention rate and a 10% turnover rate are considered “good,” but a 2021 Bureau of Labor Statistics report found an average annual turnover rate closer to 57%. This means that the fight for talent is tougher than ever before.

Simply offering a large salary isn’t enough anymore. Job seekers want to work for inclusive organizations that offer great salaries and benefits, inclusive company cultures and ample career development opportunities. They also prioritize companies that align with their goals and values. Employers should keep this in mind as they think about which strategies they can use to not only attract the best workers, but also keep them long term.

Although your recruitment and retention strategy will be unique to your business, here are 10 ways you can attract and retain skilled workers.

1. Write good job descriptions.

The first step to attracting skilled workers who match your needs is writing a good job description. A well-written job description can make a big difference in finding qualified candidates.

Content: A job description is much more than a simple list of employee responsibilities; it is often one of the first impressions a job seeker has of your organization. As such, an effective job description should not only include skills, tasks, expectations and role requirements, but also give the reader a feel for your company culture. A recent study by Skynova showed that 7 in 10 job seekers find salary to be the most important aspect of a job posting, followed by the benefits package. As such, it can be beneficial to include this information as well.

Tone: The way you write your job descriptions should match your company and brand. For example, if you have a lighthearted, goofy company culture, consider using words that convey the silly nature of your workplace. However, steer clear of words such as “guru,” “ninja” and “wizard.” The Skynova study found that many job seekers respond negatively to these terms.

Format: Format your job descriptions in a way that is easy to read. Use headers and bullet points when writing out details like requirements and responsibilities, as this will make the job description easier to scan. You will also want to include a clear call to action so that applicants know how to apply.

2. Be intentional with your hiring process.

According to a survey by BambooHR, 31% of workers leave a job within the first six months, and 68% of those depart within the first three months. A strategic recruitment and onboarding process can reduce these high turnover rates by helping new employees feel connected to their roles.

Employee recruitment

Find out which websites and job boards most align with your organization and the employees you are looking for. Asking employees for referrals is also a great strategy for finding reliable talent. You can use recruitment software or applicant tracking systems to manage your talent pipeline from start to finish.

Employee interviews

When hiring new employees, it helps to have a recruitment process that is uniform and consistent across the board. Train your HR and hiring managers on how to conduct effective employee interviews, including which types of questions they can and can’t ask. This will make your hiring process more productive and equitable.

Employee onboarding

Your hiring responsibilities don’t stop when you offer an applicant the job and they accept. You will also need a comprehensive onboarding process that reviews all required paperwork, welcomes and trains the new employee, and quickly integrates them into your team.

3. Offer competitive compensation.

Although it’s not the only thing that matters to employees, a competitive salary is still top of mind when job seekers look for a new job. If you want to hire skilled workers, you must be prepared to pay them what they are worth. Start by reviewing the industry average for employee salaries. You can also use salary benchmarks based on location, role and experience.

Pay isn’t the only way to compensate employees for a job well done. Consider other forms of compensation, such as employee retirement plans, bonuses, paid time off and stock options. Offering a diverse combination of compensation can make a job offer more attractive.

4. Build a comprehensive employee benefits package.

Although you are legally obligated to offer only a few employee benefits (e.g., family and medical leave, health insurance, unemployment insurance, and workers’ compensation, as well as FICA contributions that fund public benefits like Social Security and Medicare), creating a comprehensive benefits package is essential to attracting the best employees. Employee benefits are a great way to improve your employees’ health, well-being, job satisfaction and productivity.

The most popular employee benefits fall into five categories: health and wellness, financial well-being, work-life balance, professional development, and diversity, equity and inclusion. Create a benefits package that offers some combination of these elements.

5. Provide employee development opportunities.

A Work Institute survey found that a lack of career development opportunities is the biggest reason why employees quit their jobs. If you want to retain your most valued employees, you must provide them with a clear path to future development. Each employee should have their own career development plan that is unique to their strengths and interests.

Here are a few ways you can foster career development:

Identify clear goals to work toward. Have your employees clearly identify their career goals and then come up with a development plan to achieve them. Periodically measure employee success to see if they are progressing toward their goals or if they need assistance.

Offer training courses. Offer in-person or online training opportunities for employees to learn and build their career knowledge.
Create a mentorship program. Identify less experienced employees who show potential, and pair them with mentors who can help guide their careers with the company.
Offer stretch assignments. Provide internal staff with challenging projects just beyond their comfort zone. It will expand their skill sets and build their confidence.
Promote from within. Although you won’t always find the right candidate for a senior role from your current pool of employees, consider hiring from within when a position becomes available. If you know you will need to fill a position in the future and it aligns with one of your employee’s development goals, create a cross-training program that will enable them to earn that spot.

6. Recognize your employees.

Make your employees feel appreciated and valued. You can do this by creating an employee recognition program. Although your recognition program should be fair and equitable to all employees, it’s important to note that not all employees want to be recognized in the same way. Therefore, you should be strategic about how you create your program.

One way you can create an employee recognition plan that is unique and meaningful to each employee is to use a points system. For example, employees can earn points for their achievements and then spend them on the rewards they value most (e.g., gift cards, company swag, experiences). You can also survey your employees to learn which incentives are most engaging to them.

7. Prioritize company culture.

Company culture can impact employee job satisfaction in a big way. Many people want to work for an inclusive workplace that values and celebrates staff diversity. This all starts at the hiring process. Be intentional about whom you hire. Your company leadership also plays a huge role, as company culture usually flows from the top of the organization. For example, if your team leaders constantly show up late to meetings and talk negatively about staff members, other employees will also think it is okay to treat people this way in the workplace.

8. Monitor employee engagement and burnout.

One key to retention is employee engagement. High employee engagement can reduce employee turnover and absenteeism, as well as increase productivity and company morale. You can improve employee engagement by encouraging open communication and feedback, among many of the other tips mentioned in this article.

In addition to keeping employees engaged, you want to ensure they are not experiencing workplace burnout. Your best employees can often be saddled with the most work, which can quickly result in fatigue, negativity and reduced productivity. Bring in skilled temporary professionals to relieve overburdened staff and support resource-intensive projects.

9. Communicate your company mission and vision.

Another way you can attract and retain employees is to clearly communicate your company mission and vision statement. These are the goals and values of your organization. People want to work for an organization that they identify with. They want to know that the organization is acting in a way that they trust and support. Not everyone will click with your mission and values, and that’s okay. That’s why you want to clearly communicate these from the start, so you can build an organization filled with people that truly support your purpose.

10. Train your management staff.

It is important that your company leaders are properly trained on how to successfully manage their teams, as good managers can have a big impact on employee retention. In fact, Gallup found that 52% of departing employees claim their manager or organization could have done something to prevent them from resigning.

Perhaps these managers were thrown into the fire without the proper tools. In a study by Udemy, 60% of respondents think that managers need more training, and 56% of respondents think that people are promoted too quickly. Effective leadership training programs can help your team build their leadership skills and better manage employees, resulting in a higher employee retention rate.

Author:Skye Schooley

ustainability has gone mainstream in the corporate world. Investors increasingly understand that a corporation’s performance on pertinent environmental, social, and governance (ESG) factors directly affects long-term profitability—a recognition that is transforming “sustainable investing” into, more simply, “investing.” Most CEOs also now recognize that ESG issues should inform their corporate strategy. But one important constituency remains a stubborn holdout in the sustainability revolution: corporate boards. It is an unfortunate truth that directors tasked with securing their company’s future are often holding the enterprise back with an outdated emphasis on short-term value maximization.

A 2019 PwC survey of more than 700 public-company directors found that 56% thought boards were spending too much time on sustainability. Some of the myopia can be traced to a lack of diversity on boards. Most directors are male, white, and from a similar background, and many are retired executives who came of age professionally at a time when the link between ESG factors and corporate performance was not clearly understood. But a large part of the problem is that until recently, boards didn’t have a mandate to grapple with sustainability; instead, their time was consumed by compliance tasks driven by the corporate secretary and by inside and outside counsel.

The concept of “corporate purpose” provides the impetus that boards need to increase their focus on ESG concerns and manage their firms for long-term success. A clear and compelling mission should be at the heart of every company’s efforts to enhance its positive impacts on the environment and society. Without such a purpose, a company cannot have a sustainable corporate strategy, and investors cannot earn sustainable returns. And the ultimate responsibility for defining that purpose must rest with the board, because it has a duty to take an intergenerational perspective that extends beyond the tenure of any management team.

Our research on injecting purpose into corporate governance draws on extensive conversations with board chairs, executives, and owners of more than 100 corporations operating across a wide range of industries in more than 20 countries. We’ve undertaken that research as part of the Enacting Purpose Initiative, a multigroup project led by the University of Oxford in conjunction with the University of California, Berkeley; the investment management firm Federated Hermes; the corporate law firm Wachtell, Lipton, Rosen & Katz; and the British Academy. The initiative brings together leaders from academia and practice in the United States and Europe to provide research and guidance on linking corporate purpose to strategy and performance.

A major output of this effort is a framework to help boards deliver on purpose. Called SCORE, it was initially devised by Rupert Younger, the director of the Oxford University Centre for Corporate Reputation and the chair of the Enacting Purpose Initiative. SCORE outlines five actions—simplify, connect, own, reward, and exemplify—that can help boards articulate and foster a firm’s durable value proposition and its drivers.

Simplify

Enacting purpose begins with knowing what it is. For that reason, purpose needs to be simple and clear—straightforward enough to be understood by the entire corporate workforce, the wider supply chain, and other stake-holders.

How should purpose be communicated? A good place for boards to start is with a statement of purpose signed and issued by all the directors. The board chair and the governance committee should take the lead in drafting it. The statement should define how the company aims to create value by fulfilling unmet needs in society. It should acknowledge the negative impacts the company must mitigate if it is to retain public support and its license to operate. And it should present a distinctive message—not something so generic that the name of any major competitor could be substituted. If those criteria are met, the statement can be a powerful tool for sharing a company’s vision for long-term value creation, even in industries with negative externalities.

EQT, a global private-equity firm, describes its purpose this way: “to future-proof companies and make a positive impact.” EQT defines future-proofing as anticipating what companies need to do to stay relevant amid increasing social and environmental pressures. Its one-page purpose statement, which was first published in its 2019 annual report, explains the firm’s commitment to “being more than capital.” EQT requires that any investment meet clear financial objectives but also contribute to the United Nations Sustainable Development Goals. The company’s founder, Conni Jonsson, told us that writing the statement was fairly easy and that publishing it unites executives, directors, and investors on the company’s priorities. “For us,” he said, “aligning on the statement of purpose was merely manifesting what has been our mindset since inception.”

Connect

Once corporate purpose has been articulated, it must be connected to strategy and capital allocation decisions. Strategy is about making certain choices and consciously rejecting others after serious deliberation. Capital allocation decisions naturally follow. Sometimes the process might lead a firm to sacrifice short-term profits by abandoning a lucrative but socially harmful product, such as when Dick’s Sporting Goods decided to stop selling assault weapons. Other times a company might undertake a project that will certainly lose money, such as when Medtronic publicly shared the design specifications for its ventilators early in the Covid-19 pandemic to speed up manufacturing of the lifesaving devices.

Connecting purpose to strategy gives a CEO the necessary foundation to prioritize long-term goals and resist pressure from activist investors and others who care only about short-term returns. “We have made some specific investments that we might not have made without our purpose being so clearly articulated,” Mark Preston, the executive trustee and group CEO of the property behemoth Grosvenor Estate, told us. “More importantly, there are probably some investments that we have not made, as a result of our purpose.”

Own

Ownership of purpose starts with the board, which must put in place appropriate structures, control systems, and processes for enacting purpose. This goes beyond delegation to the risk, compliance, and ethics committees. Senior management should take responsibility for ensuring that the company’s mission is embraced by everyone in the organization, right down to workers on the shop floor. It does this through its own actions, particularly when making tough trade-off decisions. Effective ownership requires that employees be fully consulted and engaged in delivering on the company’s stated purpose. Although management is responsible for direct communications with staffers, the board can create and oversee internal communication strategies to ensure that the company’s purpose is being effectively diffused throughout the organization.

At firms where a controlling family owns large blocks of shares or votes—as is the case in many of the largest companies around the world—the family’s representatives on the board can be especially forceful in helping the company find and execute its purpose. That has certainly been true at Ford Motor Company. “Our drive for environmental sustainability has come from our executive chairman, Bill Ford,” says Henry Ford III, a corporate strategist and the great-great-grandson of the company’s founder. “He was the one who really pushed us to do annual sustainability reports where we are transparent about the progress we are making in terms of reaching our environmental goals.”

Reward

Primarily through its compensation committee, the board is responsible for establishing the metrics that will be used to determine promotion and remuneration throughout the organization. Purpose, not simply profits, needs to be rewarded. Today compensation is largely based on short-term financial metrics. That has to change: A broader set of financial and nonfinancial metrics should be used to evaluate performance over longer time frames. And the place to start is with the board’s structuring of compensation for senior executives. For example, after British taxpayers bailed out Royal Bank of Scotland during the financial crisis of 2008, the bank’s board of directors linked 25% of executives’ variable pay to key performance indicators in the areas of “customer and stakeholder” and “people and culture.”

When choosing the right metrics to tie to rewards, performance should be evaluated in terms of both the company’s ESG activities and the external impact of its products and services. Materiality needs to be a cornerstone—the board and management must be aligned on which ESG issues are relevant to the company’s financial performance and should therefore be baked into executive compensation. For example, carbon emissions are not material for an insurance company, but for a coal-fired utility company they certainly are.

Ideally, the measures used to assess performance and drive rewards will eventually be based on a set of independent, rigorous global standards for evaluating ESG impacts, similar to the standards that have long been used to gauge financial performance. The foundation for this has already been laid by the work of the Global Reporting Initiative, the Impact Management Project (IMP), and the Sustainability Accounting Standards Board (SASB). (Disclosure: One of us, Eccles, was the founding chairman of SASB and is an unpaid adviser to the IMP.) When this work is complete, standardized ESG reporting will enable peer comparisons of how each company is positioned to handle the risks and opportunities presented by nonfinancial issues. Boards can then more easily link a company’s performance on these metrics to executive compensation.

Exemplify

Purpose and how it is being achieved must be exemplified in both quantitative and qualitative terms. Quantitatively, a company should integrate its reporting on financial performance with its reporting on sustainability performance, showing how results in the two areas are related. Qualitatively, it is important to have a consistent narrative that includes stories about what the company and its people are doing to fulfill its purpose.

Patagonia, the outdoor-clothing retailer, gets this better than most. Its stated purpose—“We’re in business to save our home planet”—drives all its activities. The company not only makes eco-friendly apparel but also engages aggressively in environmental advocacy and promotes an appreciation of sustainable practices and the natural world with beautifully crafted, visually appealing stories on its website and social media.

At the U.S. food manufacturer J.M. Smucker, purpose involves “feeding connections that help us thrive.” The firm aims to create “meaningful connections…for those we love and the communities in which we live,” and that’s exemplified in the way it treats its employees. As the executive chairman, Richard Smucker, told us, “You demonstrate your purpose when you take action. Sometimes you’re put in tough ethical situations and it’s about how you respond. For example, when closing plants, we have always given plenty of notice to make time for transition. You get respect because you’ve given respect.” He added, “To communicate our commitment, every year we print a small handbook for all employees with our purpose, our commitment to each other, and our strategy. You can carry in your pocket why we do things, how we do them, and what we do.”

A New Duty

When we promote the SCORE framework to directors, they often respond with a common fallacy: They cannot elevate corporate purpose because they have a fiduciary duty to put shareholders’ interests above all others. Setting aside the growing evidence that superior performance on material ESG issues leads to superior financial performance, it is simply not true that shareholders must come first. Shareholders are obviously important, but other stake-holders—such as employees, customers, and suppliers—are also crucial to a company’s long-term prospects.

To dispel directors’ misconceptions, we recently gathered legal memos on fiduciary duty from all G20 countries and 14 others. None offered an endorsement of shareholder primacy. This was true even in the United States. For example, a memo issued by Wachtell, Lipton, Rosen & Katz stated: “A corporation ignores environmental and social challenges at its own peril. Corporate boards are obligated to identify and address these risks as part of their essential fiduciary duty to protect the long-term value of the corporation itself.”

The key to putting the SCORE framework into practice is finding people and organizations willing to be among the first to act. A natural place to look for them is among the members of Business Roundtable (BRT), the lobbying group that declared in 2019 that the purpose of a corporation is to create value for all stake-holders. Nearly 200 CEOs, including the heads of some of the world’s largest companies, endorsed that idea. Each of those leaders’ boards should now walk the talk by publishing a firm-specific statement of purpose and implementing the SCORE framework. If the directors at the BRT companies fail to act, their behavior will not only breed cynicism but leave them vulnerable to ongoing attack by investors demanding more-concrete action on ESG issues.

If investors are to better identify a corporation’s role in society and its prospects for long-term financial returns, board members need to articulate and disclose their company’s durable value proposition and its drivers. The SCORE framework provides a tool to do that. We hope more boards will use it to promote long-term value creation and a more just and sustainable economy.

By Robert G. Eccles, Mary Johnstone-Louis, Colin Mayer, Judith C. Stroehle

Board composition and performance continue to be under scrutiny by various stakeholders. Institutional investors are paying close attention to the individuals representing their interests in the boardroom, and how the board addresses its own succession. Hedge fund activists are also watching and certainly have not been shy about seeking change. And directors themselves are increasingly vocal about the performance of their peers. In fact, 49% of directors believe someone on their board should be replaced, identifying an opportunity to enhance boards’ skills; 21% believe two or more directors should. They say their top reasons are because directors overstep the boundaries of their oversight role, are reluctant to challenge management, have a style of interacting that negatively affects board dynamics and advanced age has led to diminished performance. So, how do boards use their annual assessment process to measure effectiveness, drive refreshment and raise performance? They shift to a continuous improvement mindset.

49%

of directors believe someone on their board should be replaced.

21%

believe two or more directors on their board should be replaced.

Most boards conduct board and committee assessments as required by stock exchange listing standards. More and more boards are also conducting individual director assessments; 44% of S&P 500 boards include some form of individual director assessment, up from 29% ten years ago.² While some boards are quite good at conducting their board assessments, others could stand to get more out of the exercise. The biggest roadblocks? Viewing it as a compliance exercise, using an approach that doesn’t really allow for honest feedback and failing to follow-up on the results.

Boards and individual directors would benefit from re-envisioning their assessment approach. This involves re-defining the process as one that is ongoing and provides real value and continuous improvement. Here are five key actions to ramp up the board’s next annual assessment:

Lead like a lion. Board leadership is critical to making changes happen. Without a strong leader, it doesn’t matter how meaningful your assessment process is.

Change the endgame. Making the assessment process an ongoing exercise with the goal of continuous improvement can deliver better results. But early buy-in from all directors on the process is critical.

Address the elephant in the room. Boards that have frank discussions about what is holding their performance back can excel. This involves having a way to provide honest individual director feedback, which can be done in different formats. A periodic independent perspective can help.

Take action to get real results. Effective boards are disciplined about identifying and holding themselves accountable for action items coming out of the assessment. They also integrate assessment results into their director succession plan.

Be transparent with investors. Many boards are taking a closer look at their disclosures around board assessments — seeking to provide stakeholders with a greater understanding of the process. Shareholder engagement in this area has risen, and boards are taking steps to be more transparent.

Lead like a lion

Board leadership is critical to making any changes happen. The board leader sets the tone for the culture of the board, and in many cases leads and drives the assessment process. In fact, 85% of directors indicate that a strong focus from the board chair or lead director is an effective method to drive board refreshment.³ Without a strong leader, it doesn’t matter how meaningful your assessment process is. A close look at board culture and whether directors really can be candid when providing feedback is also needed. This involves understanding the way that directors make decisions, handle disagreements and share information. If the board is to continue to grow and improve, the culture has to be open to the idea of giving — and receiving — regular feedback. And, board leadership is key to ensuring this environment exists.

Change the endgame

Let’s face it, the word “assessment” can have a negative connotation. It can put people on edge, even in a boardroom of high-performers. Because of the collegial nature of many boards, it can sometimes be hard to deliver less than glowing feedback about a fellow director — which can turn the process into “something to get finished” rather than a way to enhance board performance. So what can boards do? Take a fresh look at the approach: Boards can improve the value of their assessment process by focusing on continuous improvement and board excellence. Effective assessments should look at ways to enhance board dynamics, composition, oversight and practices. They should reinforce what is working well and highlight those obstacles that are limiting strong performance. And, the assessment is best viewed as an ongoing process rather than just a once a year event. Some boards have embraced a continuous improvement mindset by adding more frequent opportunities to discuss effectiveness as part of their agendas. Others have instituted a formal process for providing director feedback or coaching throughout the year. Boards can also take a fresh look at their assessment approach and evolve the format or ask different questions to drive a better outcome. They may even find it valuable to dive deeper on a few particular areas where they believe there is potential improvement. Get early buy-in: Before the assessment process begins, directors should discuss the approach and decide on any changes they wish to make. This involves engaging directors early and giving them a chance to provide input and voice their concerns so these items can be addressed appropriately. The discussion should cover the assessment’s scope and objectives, how it will be conducted and reported back, and the need to openly share and receive feedback. The goal is to get agreement on what the assessment process should accomplish and obtain commitment and support for it.

Address the elephant in the room

What holds boards back from top performance? Board culture and interpersonal dynamics tend to be the most common sources of dysfunction in the boardroom. Dysfunction can take various forms, whether it is a lack of trust between the board and CEO, disruptive or disengaged directors, factions in the boardroom or poor decision-making processes. These issues, though sometimes apparent to those in the boardroom, can be the most difficult to address. \

To improve board performance, directors need to identify and address what isn’t working, and the assessment process can be a key way to do so. But directors need to be frank in these discussions. And this isn’t always easy to do — especially when collegiality on the board is valued. Fifteen percent (15%) of directors cite collegiality as a barrier to effective board refreshment.⁴ Twenty percent (20%) of directors say that they have a board leader who is unwilling to have difficult conversations.⁵ Add to this the fact that many boards do not have a way for directors to share feedback with their fellow directors. So what can boards do to address the elephant in the room?

Institute mechanisms for honest director feedback: Boards can address whether the assessment process really allows for issues and concerns to surface and be dealt with, particularly the ones related to individual director performance. The process should permit the board, its committees, and individual directors to think critically, have meaningful discussions and identify potential areas for improvement, as well as demonstrate a willingness to address any weaknesses. A high-performing board culture allows directors to feel comfortable being open and candid with their concerns.

Feedback on individual directors is increasingly viewed as a critical component of the assessment process. Directors can use the output to improve their performance. The format of individual director feedback can vary. The goal shouldn’t be to grade directors, but to provide constructive input that can improve performance. Approached in this way, directors often welcome the opportunity to receive feedback.

More and more boards use some type of individual director assessment or a peer assessment process. Others may implement a mentoring program for directors. Another way to provide individual director feedback can be to have each director meet periodically with the chairman/lead director or nominating/governance committee chair.

Board leadership plays a critical role in ensuring directors receive important feedback. Board leaders frequently get feedback on individual directors or observe behavior in meetings that can be improved. However, awareness of these behaviors does not always translate into action. For example, only 14% of directors say their board provided counsel to one or more board members as a result of their self-assessment.⁶ High-performing board chairs and lead directors will embrace this role.

Six key questions to consider asking in self-assessments

Boards that are committed to self-improvement use assessments to ask:

How effectively do we engage with management on the company’s strategy?
How strong is our relationship with the C-suite and how are we adding value to it?
How effective is our board succession plan?
Do we have the right mechanism for providing individual director feedback?
What is our board culture and how well does it align with our strategy?
What processes are in place for engaging with shareholders?

Consider periodically getting an independent perspective: Companies may choose to periodically engage an independent facilitator to assess board performance. Fifteen percent (15%) of directors say they used an outside consultant to assess their performance in 2020.⁷ And, this number is likely to increase because of growing stakeholder pressure on board performance.

An independent view can be very helpful in providing the board with perspectives on how it compares to its peers or “measures up” to the evolving standards of corporate governance. The third party can also conduct interviews individually and share the collective feedback with the director without providing attribution to help them understand what is working well and where there are concerns or areas for improvement. Ultimately, the independent facilitator has the advantage of being able to more readily identify and air difficult issues, and can help the board reach a consensus on how to respond effectively. While most boards wouldn’t use one every year, many hire third-party facilitators every two to three years or as needed in response to changing board dynamics or emerging challenges.

Take action to get real results

Committing the time to review the results of the assessment process and having an open discussion about the findings are critical. But boards often fall short as they spend too little time — or even no time — discussing and acting upon assessment findings. This is a missed opportunity. Agree on action items and develop a plan for change: Directors should work together during the assessment process to identify and agree on areas in which the board would like to improve. Areas for improvement might be to add a director with particular experience, increase the board’s diversity, schedule a board retreat that focuses on strategy, create more opportunities to communicate with the CEO or hold more frequent executive sessions. At the individual level, a director may be advised to attend an educational program to enhance knowledge in a particular area, engage more often in discussions or change behavior in the boardroom.

14%

Only 14% of directors say their board provided counsel to one or more board members as a result of their self-assessment.

Effecting real change requires a plan for addressing issues raised in the assessment. Such a plan starts with identifying a leader — often the chairman, lead director or nominating/governance committee chair — to drive the changes. The leader should develop an action plan to discuss needed changes with the appropriate parties, as well as identify potential strategies, options and key milestone dates. It is then important for the leader to monitor implementation of the action plan for additional follow-up and results, keeping the full board updated on progress.

Board Action on Assessments

Add additional expertise to the board

40%

Change composition of board committees

32%

Diversify the board

21%

Provide disclosure about the board’s assessment process in the proxy statement

17%

Provide counsel to one or more board members

14%

Not re-nominate a director

12%

We did not make changes

12%

Q: In response to the results of your last board/committee assessment process, did your board/committee decide to do any of the following?

Integrate assessment results into board succession planning: As part of the action plan coming out of the assessment process, the board should discuss whether changes are needed to the board succession plan. The assessment process is a natural platform for reviewing the skills and expertise needed on the board in the context of the company’s long-term strategy. Does the board need access to deeper technological skills? Does it need more diversity of perspective? These discussions should filter into director succession planning, which is often led by the nominating/governance committee.

Today, director succession planning is often performed as a separate, distinct exercise, done on an as-needed basis when facing an impending vacancy on the board. But when findings from the assessment process are integrated into succession planning, the board is more likely to address issues in its composition and make the changes needed to get the right people in the boardroom. If new or different skills and expertise are needed, boards can consider them when seeking new directors. High-performing boards evaluate composition holistically and address it over a longer period of time, perhaps even with a five-year succession plan. Some boards act sooner by expanding their size to accommodate a new director with the needed skills and expertise. For more information, see Board composition: The road to strategic refreshment and succession.

Be transparent with investors

Shareholders are seeking more information about how boards address their own performance, including whether they are using assessments as a catalyst for refreshing the board. Today, disclosures are increasing in this area. Twenty-two percent (22%) of S&P 250 companies included a graphic to illustrate their evaluation process in the 2019 proxy statement. Eight percent (8%) provided results and steps in place to address any issues.8 Benchmark disclosure on assessments and consider voluntarily expanding it: Boards are generally doing more than they disclose. And, with the increasing spotlight on board performance, the time may be right to reassess these voluntary disclosures and provide more insight. The Council of Institutional Investors (CII) suggests that “[s]uch disclosure is an indication that a board is willing to think critically about its own performance on a regular basis and tackle any weaknesses.”9 CII highlights two best practice models for disclosure. One focuses on the mechanics of the assessment process, illustrating the process the board uses to identify and address gaps in its skills and performance. The other focuses on the most recent assessment, recapping the key takeaways and plans for improvement. CII notes that depending on the board’s process, disclosure may include: A description of the steps in the board evaluation, including who is reviewed and how reviews are conducted A discussion of continuous improvement initiatives and the activities that directors participated in during the past year Whether the board engaged an external adviser to conduct the board evaluation and the role that the adviser played (for example, interviewing board members) The objectives for the evaluation and how the board will use the findings Follow-up discussions that occurred. For example, some boards report having a mid-year check-in to evaluate the progress made in addressing areas of focus identified in the annual evaluation Boards can ask management to benchmark the company’s disclosure about the board assessment process with that of peer companies. They can also ask them to draft a sample enhanced disclosure that includes additional information on the board’s assessment practices and considers insights drawn from management’s review of other companies’ disclosures and shareholders’ perspectives. This information can help the board to critically evaluate whether it should voluntarily enhance its proxy disclosures. Be prepared for potential engagement with shareholders on self-assessments: Direct communications between board members and investors has grown considerably over the last several years. Fifty-eight percent (58%) of directors now say their board has such engagement. Shareholders are more often meeting with nominating/governance chairs and asking about board assessments as part of their engagement program. One survey found that in nearly 14% of cases, board-shareholder engagement was conducted under the guidance of the nominating/governance committee chair. If board composition is part of engagement, shareholders may want to understand how boards are assessing their own performance and the skills and expertise needed to oversee the company’s long-term strategy. They also want to understand the board’s position on director turnover, succession planning and diversity. Some high-performing boards even conduct “opposition research” to understand and identify what a tough critic would say about their board’s composition to be prepared for any potential engagement.

Conclusion

Board performance is being scrutinized by shareholders, the media, the public and others. In today’s environment, boards will want to refresh their assessment process to ensure it encourages a continuous improvement mindset and allows for candid and honest feedback. When done well, the assessment often results in changes that allow the board to deliver greater value to the company and its shareholders. And boards will want to tell their investors that they critically evaluate their own performance, addressing obstacles and striving for improvement.

Retrieved from www.pwc.com

Sustainability is the number one topic on which investors want to engage the board of directors during shareholder meetings. Investors are the most powerful stakeholders. When they want priority to be given to ESG (environment, social, and governance), should not the corporate board have members who have at least some form of expertise in ESG? Unfortunately, about 70% of board directors in a BCG-INSEAD Survey said their board was ineffective at integrating sustainability into governance and strategy building. Demands for sustainability coming not only from investors, but also from consumers, supply chain partners, government regulators, and employees are increasing year by year. It is only logical to have sustainability experts sitting on the board of directors of a company.

Rising importance of sustainability

A decade ago, a company focusing on sustainability would have a competitive marketing edge, but today it is more than that. It has become imperative for all companies to integrate ESG due to increasing demand by all stakeholders. Younger generations of consumers, especially millennials and Gen Z, are increasingly particular on consuming sustainable products, with 73% of Gen Z consumers saying they are even willing to pay more for them. Gen Z are also particular on working for companies adhering to sustainability: a Deloitte survey shows that 49% of Gen Z had made career choices based on personal ethics.

Many governments have become stricter after the Paris Climate Agreement, with many setting legally binding net zero emissions targets. The EU’s taxonomy, for example, will force change in companies operating not only in the EU but also in other countries around the world that have businesses in or trade with the EU. When making investment decisions, 85% of investors in 2020 looked at ESG factors. Sustainability is also about increasing financial returns as companies with an inclusive culture show a 22% increase in productivity and a 27% higher profitability.

Why sustainability experts are essential to corporate boards

Boards lack knowledge on ESG factors –Only 25% of board directors say boards understand ESG risks, which is disturbing when the world is shifting heavily towards sustainability. This year, the board directors of the oil giant Shell were sued for failing to prepare for a net-zero future. With so much on the line, the board needs to have the expertise on ESG. Unfortunately, in an INSEAD survey, only 47% of board directors felt that they have the required ESG expertise and competence to exercise board oversight on execution. Even having an ESG expert at the C-suite as a chief sustainability officer is not enough as ESG requires board-level attention and authority.

Fulfilling stakeholder demand – The calls for ESG have become louder and more proactive, fuelling stakeholder demand. Apple’s 2022 shareholder meeting saw Apple giving in to pressure by shareholders to do a civil rights audit. The world’s largest asset manager Blackrock backing climate activists to join the ExxonMobil board last year was another clear sign of the need for sustainability as a strategy at the highest decision-making authority in a business, which is the board. The voice for prioritising ESG also comes from supply chain partners, regulators, employees, and consumers. Not having an expert on the board and relying on the C-suite or outside consultants is clearly not enough in an evolving world demanding change on the environmental, social, and governance fronts.

Accountability requirements – Recent regulations by the US Securities and Exchange Commission regarding ESG information shows that there will be a need for aligning financial statements with ESG disclosures. At least one ESG expert at the board will need to be up to date with present and future regulations to oversee management’s fulfilment of compliance needs. Also, independent ESG auditors giving assurance is likely to increase with many standards converging under the International Sustainability Standards Board through which companies are looking to guide their policies.

Building strategy around sustainability – Like digital transformation, sustainability is embedded into all parts of an organisation. To stay relevant, the board needs to integrate sustainability into the company’s overall strategy. A report shows that 81% of board members prioritise strategic and operational ESG integration. To make long-term investments and strategic partnerships, a strategy is needed. More experts can shift the focus of the board towards integrating ESG into strategic planning and execution.

By Talal Rafi

Notes:

This blog post represents the views of its author(s), not the position of the European Commission, LSE Business Review, or the London School of Economics.
Featured image by Nastuh Abootalebi on Unsplash
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