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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truth that directors tasked with securing their company’s future are often holding the enterprise back with an outdated emphasis on short-term value maximization.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

 


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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


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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
  • When you leave a comment, you’re agreeing to our Comment Policy.

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Author:Bill Hayes
Support the board by providing feedback and sharpening your listening skills.

The topic of becoming and remaining an effective director would seem to lend itself to a degree of selfishness. 

“How do you develop yourself so that you can effectively serve on a board of directors?” 

“How do you keep up with developments in the field so that you can continue to be of value to your company?”

However, being a proficient director is not always about how you prepare for or conduct yourself in the boardroom. Often, it can involve how you work to elevate other directors so that the boardroom unit can better serve the company.

Michael Montelongo, independent board director for Civeo Corporation and Conduent Inc., believes a high-performing board is more than a collection of high performers. It’s a cohesive group of servant leadership practitioners who feel they’re part of something larger than themselves, and communicate, collaborate and innovate as a team to make the organization better than they found it. 

“Making that team chemistry work requires continuous individual and mutual accountability,” says Montelongo, who served as a commissioned officer in the United States Army and, later, as a senior Air Force official before embarking on a corporate career. “It is so important to give feedback, because in a culture defined by mutual trust and respect, your peers expect and appreciate it.”

Sanjai Bhagat, an independent board member for ProLink Solutions and Provost Professor of Finance at the University of Colorado Boulder, believes that the same level of frankness must be brought to the board’s relationship with the CEO. He relayed an anecdote from his time serving on the board of a company thriving in the digital marketing space. When the internet began to explode in the early 2000s, the company’s CEO thought it was time to invest in the World Wide Web. Bhagat was not convinced.
 
“I told the CEO, ‘You know something about digital marketing. What do you know about the Internet?’” says Bhagat. “All the other board members were saying, ‘It’s time to get into the Internet.’ I said, ‘There are a lot of things we can get involved in, but what competitive advantage do we have?’”

The board decided to go forward with investing in several internet companies, but within 12 to 18 months all had gone belly-up and the directors who had supported the investments had left the board. Meanwhile, during a trip around the golf links, Bhagat discovered the benefits of providing direct, authoritative counsel to the CEO.

“The CEO said, ‘Remember the meeting we had two years ago? You’re the only guy who was saying not to make those investments,’” says Bhagat. “‘And now you’re the only one I’m still playing golf with.’”

On one of his boards, Mike Airheart, a director for HUB Corporation and an advisory board member for Quartix, has received an interesting lesson in what it takes to be an effective leader: “Shut up and listen.” 

Airheart is the only white male on the board of a small, minority-owned manufacturing company. This has taught him the value of learning from other people’s perspectives and experiences. 

“You have the same trust-building issues you would in any situation, regardless of race, color or gender,” says Airheart. “But I’ve had to listen more and be a bit more aware of people coming from different backgrounds. It’s been a real learning experience. I’ve grown from the situation.” 

While Airheart is in the minority on his board, he is not in fact from an underrepresented community. There is no doubt board members from underrepresented communities can struggle on boards because their perspective is not fully taken into account. Montelongo believes minority board members who are struggling to adjust to their boards must maintain the confidence that drove them to be recruited for the board seat in the first place. 

“Don’t ever feel like you don’t belong. You are there because your insight, expertise and judgment are critical to your team’s success,” says Montelongo. “Listen, learn, grow and serve. I think if you apply that, you’re going to make a great first impression, and you’re going to be a valuable contributor to your organization.”  

 


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Author: Rebecca Bosl

Ever thought about becoming a member of a board?

Experienced C-suite leaders will often seek out board positions to expand their horizons, tackle new challenges and increase their value. Serving on a board is often a prestigious position and provides evidence of thought leadership and industry knowledge. As a bonus, many board members get paid for serving.

Finding a board to serve on is a journey and doesn’t often happen quickly. While some opportunities are posted, many are discovered through a person’s personal or professional network. While conducting a search for a board position might seem daunting and unfamiliar, in reality, landing a board position utilizes similar steps to landing a job.

Reviewing The Job Description

Job descriptions for board of directors’ seats vary. They often include some combination of the following skills:

• Related industry experience

• Strategic planning and strategy development

• Leadership

• Collaboration

• Financial expertise

• Ability to gain buy-in and consensus

• Problem-solving

• Fundraising

• Mergers and acquisitions

• Business transformation

• Operations excellence

• Turnaround expertise

Obviously, one person is not going to have all these skills. But you will want to highlight the skills that you do have by listing them in your competencies section and briefly describing your experience in the overview or summary section.

Writing A Board Of Directors Resume

Writing a resume for a board of directors position is similar to writing a regular resume. A board resume is typically one page in length, but it can be longer if needed to convey the candidate’s value.

As a first step, consider your audience. Those reading the resume are typically the nominating/governance chair of a board, and a recruiter might have the first pass at your resume.

Next, you want to view the job description to identify what qualifications the board is looking for in this position. You want to highlight your education, experience and key qualifications that match the position.

Here are some best practices you can follow for writing your board of directors resume:

• Title: Include the title of the board position you’re seeking and not an objective or “seeking” statement.

• Branding statement: Add a one-line branding statement at the top that captures the main value you bring as a board candidate (one to two sentences should do the trick).

• Summary/overview section: Highlight the main skills you bring to the role and the types of board roles you can fulfill. Be sure to mention other leadership roles, international experience and skills that assist in overall organizational leadership.

• Education and credentials: Highlight degrees and certifications that are relevant to the position.

• Professional experience: Cover each job on one line, noting title, company, city and years. As an option, add in a brief description of each company, noting type (public, private, nonprofit), industry and revenue (if applicable and if not confidential).

• Key qualifications: Only include competencies that are related to the position.

• Contact information: Include name, city and state, phone, email and LinkedIn profile URL.

• Directorships: Note any other board leadership positions including committee roles and positions including director or chair.

• Other items: Include relevant memberships, affiliations and awards.

• Activities: Add community service or volunteer positions.

• Photos: Leave the photos for LinkedIn and your executive biography. Resumes and board resumes should not include a photo.

Uncovering Available Board Of Director Positions

Finding board positions is like finding job openings in a regular job search. You’ll want to use multiple approaches to finding your board seat, just as you would in a job search.

First, you can directly reach out to organizations as you would in a targeted company search when looking for a job. You will also want to engage your network—as with a normal job search, your network may be the very best source of open board positions. Get on the radar of executive recruiters; sometimes they hear of board seats and may also recruit for the company.

You can also raise your profile as a subject matter expert by being involved in industry associations, speaking at conferences and posting thought leadership articles.

Several niche websites (listed below) assist with providing education and by posting board positions:

National Association of Corporate Directors

• Mission: Empower directors and transform boards to be future-ready.

• Provides NACD Directorship Certification to ensure qualification to serve in a director role and demonstrate commitment to staying up to date on current topics in corporate governance.

• Includes prospective director registry. This allows a board position seeker to create a profile that can be viewed by boards seeking new directors.

Private Directors Association

• Dedicated to improving private companies’ growth and sustainability; teaches board formation and governance; enhances private company value.

• Advocate for the value of diverse and inclusive boards.

• Posting service to help private companies gain access to qualified candidates through PDA’s nationwide membership for their fiduciary or advisory board roles.

Take the next step in seeking your board of directors position. Start looking for positions and create a tailored board of directors resume to target these roles. While the concept of seeking board of directors roles might feel daunting, remember it is similar to looking for a regular job.

Boardsi

Boardsi charges a membership fee to users. It is a modern recruiting company providing executives with board of advisor/director positions and provides companies with top executive talent.

In summary, pursuing board of directors positions can be an exciting new avenue for executives wanting to leverage their experience in helping other organizations achieve their goals. Create a tailored board resume, reach out to your network, gain some credentials and check specialized job boards. You’ll be well on your way to an exciting new career adventure.


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If you’re a private company owner or shareholder, you may find yourself asking: How do I find highly qualified individuals to join my board? When a board seat is empty and needs to be filled, keep these three strategies in mind

Be Selective

Quality over quantity is key. It’s not just about filling all the seats at the table, but attracting people who can actually get the job done. Serving on a board is rewarding but time-consuming, and there is no room for passive membership when it comes to strategic decision making. Maybe you have interest from someone who intends to serve on as many boards as possible, something I like to call “overboarding.” No one benefits from filling a table with talking heads when a smaller, yet more productive team is what may truly be necessary to propel the corporation forward.

Ask yourself these questions:

  • Does my board simply fill blank space on the candidate’s resume?
  • Is this candidate guilty of being spread too thin?
  • Does this candidate add a key skill set or perspective to our team?
Diversify

It’s sad but true: Women and minorities are largely absent from corporate boards. Lack of diversity in the boardroom is a significant problem and affects us all in more ways than we realize. In fact, decisions made by boards of directors can impact you, your community, and the country. A diversified board ensures a variety of perspective that can come only from people with different backgrounds and experiences. It promotes a variety of viewpoints when it comes to leadership tactics, problem solving, and curating unique and thoughtful perspective on the organization as a whole. A board should mirror the company it governs, including its employees and customers. Lack of diversity is reason enough for boards to reassess their structure.

In fact, a report entitled Why Diversity Matters by McKinsey & Company found that companies in the top quarter for ethnic and racial diversity are 35% more likely to see financial returns above their national industry median. Interestingly enough, those companies in the bottom quarter for gender, race, and ethnic diversity are less likely to deliver above-average financial returns than the average companies in their national industry median.

From a gender perspective, a Catalyst report entitled The Bottom Line: Corporate Performance and Women’s Representation on Boards found that on average, companies with the highest percentage of female board directors outperformed those with the least by 53% for return on equity, by 42% for return on sales, and by 66% for return on invested capital. The writing is on the wall — diversity on boards is good for business.

Network

So how do you find qualified and diverse candidates? Often, it’s about whom you know, but what about those you didn’t realize you knew? Simply put, networking today is at your fingertips 24/7 thanks to social media, apps, and other networking tools. Online networking helps expand your network and serves as a helpful complement to traditional in-person networking.

But let’s not fully discount good old traditional networking. Face-to-face connections at events, conferences, and social gatherings can present a world of opportunity you may have never known existed. Opening up lines of communication to a second- or even third-degree connection could lead to an excellent fit for the board position you are looking to fill. New ways of networking enable us to step out of our comfort zones and create meaningful partnerships that take our organization to the next level.

Effective recruiting for your organization’s board is dependent on selectivity, diversity, and networking. The responsibility of the board member is to try to make a difference while hopefully gaining professional and personal satisfaction in the process. If there is ever an opportunity to be selective, assembling a winning board is it.

 


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Author: Jeff Middlesworth CEO, Boardable

Today, the board of directors is responsible for appointing tech-savvy members and protecting the organization from risk. It’s no easy task.

In an era of rapid innovation, organizations and associations are vulnerable to more avenues for cybersecurity threats than ever. The boardroom is no exception. Jeff Middlesworth, CEO of Boardable, explains why an organization’s governing body must now rely on virtual meetings and document exchanges to enhance board management. 

Since data breaches increased by 15.1% in 2021 compared to the previous year, mitigating cybersecurity risks is more critical than ever. Cybersecurity worries have only grown since Russia invaded Ukraine. More than half of companies reported cybersecurity as the most impacted part of their business since the beginning of the conflict.

Today, the board of directors is responsible for appointing tech-savvy members and protecting the organization from risk. It’s no easy task. Boards must:

  • Establish digital governance committees
  • Understand which security features to look for in a tech stack
  • Educate themselves with varying levels of technological know-how
  • Implement approaches that combine policy and technology
  • Leverage a fully secure virtual meeting platform

How Cybersecurity Flaws Affect Your Business

Cybersecurity flaws derive from competitors, foreign powers, hostile hackers and lack of security configuration. Yet as quickly as we develop new technologies to prevent hacking, cybercriminals find ways to exploit them via phishing, malware and ransomware attacks to gain access to sensitive, valuable data.

These threats increase a company’s odds of losing:

  • Business plans
  • Customer and employee data
  • Financial records
  • Intellectual property
  • Money
  • Product ideas

It takes an average of 287 days for businesses to detect a data breach. Companies should consider these threats and work with their board to develop defense plans.

How Boards Can Help Enhance Cybersecurity

While cybersecurity threats continue growing, so do effective solutions to prevent attacks. Boards can no longer sit by the wayside and let IT handle the brunt of the work. Maintaining cybersecurity is not just a technical problem but also an organizational issue. With the power to give companies the tools and guidance they need to prevent cyber risks, boards are now the first line of defense against online threats.

Mitigating cybersecurity risks now starts with board proactivity.

1. Digital governance committees

Establishing digital governance committees increases your company’s accountability and ultimately improves decision-making regarding maintaining cybersecurity. Digital governance committees must include individuals who understand the complexities of cyber risks and how to address them. Once boards recruit these digitally-savvy committee members, they should dig into the specifics of cybersecurity risks and — if necessary — how to manage them.

Establishing digital governance committees increases your company’s accountability and ultimately improves decision-making regarding maintaining cybersecurity. Digital governance committees must include individuals who understand the complexities of cyber risks and how to address them. Once boards recruit these digitally-savvy committee members, they should dig into the specifics of cybersecurity risks and — if necessary — how to manage them.

For example, the committee should prepare to answer the following questions:

  • What does a data breach look like?
  • What should we do in the event of a data breach?
  • What steps need to be taken to build cybersecurity?

Holistically, your digital governance committee should be able to distinguish outside threats and how to address them.

2. Security features

It has become critical for boards to understand their company tech stack’s security features. With malware attacks increasing 358%, ransomware attacks increasing 435% and phishing attacks accounting for over 80% of security incidents, companies must prioritize effective cybersecurity technology, processes and protocols.

Perimeter security technology — a shield for your business — includes web application firewalls, spam filtering, content filtering and antivirus software. Authentication tools also keep unwanted guests from snooping on your business data. Multifactor authentication requires a secondary method or device to authenticate users. Other security measures, such as password management, need employees to update their passwords consistently.

Finally, boards must evangelize and encourage companies to implement backup and disaster recovery tech. This technology allows businesses to retrieve lost information compromised by data breaches.

3. Educated board members

Adding just one board member with cybersecurity knowledge helps colleagues disseminate crucial information about prevention and risk management.

During each meeting, boards should also allocate time to discuss current cybersecurity risks and preventative strategies. By dedicating time to discuss risks, board members have the opportunity to raise questions and carve out their role in helping address cybersecurity threats.

Lastly, companies should include boards in all cybersecurity training programs. Plenty of training programs exist designed to increase cybersecurity literacy. Your business’s security goals and the board’s current knowledge level can guide you in choosing the right one.

4. Combining policy and technology

Instead of scaring boards into preventing cybersecurity threats, enlighten them on the importance of protection. For example, boards should encourage IT departments to set strict employee password requirements and use password management technology to store and update passphrases.

Social media remains the king of the internet. Boards must also set social media limitations for those within the company. Restrictions include prohibiting employees from sharing sensitive business information online or using social media during work hours.

Despite the growing popularity of remote and hybrid work environments, boards must consider developing and implementing policies dictating how, where and when employees can access their business devices. Additionally, boards should set restrictions on removable devices — or, if required — IT departments must perform virus scans before devices connect to business systems.

Many companies are implementing a zero trust framework that requires all users to be authenticated and authorized before being given company data and app access. Boards should also consider a zero trust framework to prevent unauthorized access from unauthorized users.

5. Secure virtual meeting platforms

As more businesses communicate digitally, they must prioritize maintaining security across virtual meeting platforms. With tools like agenda builders, minutes makers, document centers, polls and voting, and messaging protected by robust security measures, the right virtual meeting technology allows companies to communicate effectively and securely.

When vetting a virtual meeting platform, boards must choose one with administrative, technical and physical safeguards to protect sensitive data. Also, ensure the platform complies with General Data Protection Regulations.

Data breaches cost companies an average of $4.35 million per breach. That number should raise eyebrows no matter how large or small the business. A multimillion-dollar data breach drains assets and puts companies on precarious financial footing.

But failure to prepare for these threats goes beyond monetary value. Businesses lose customer and employee confidence with each data breach – their sensitive data is at risk. Companies suffer significant reputational damage. It takes companies months – sometimes years – to recover from the consequences of cybercrime.

Prowling cybercriminals often remain undetected for months. Don’t wait to prioritize cybersecurity. The best time for boards to take the necessary steps to enhance their company’s security is now. The health and well-being of their company depend on proactive cybersecurity measures. Boards are pivotal in helping IT, and security teams build a protective layer around their digital assets and set security standards for the entire organization.


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“The Covid-19 pandemic has triggered a change in the skills in demand for board members, a new study has found. According to the Director Sentiment Monitor research published by the Institute of Directors (IoD) in Ireland, almost a third of business leaders say the pandemic has altered required skillsets and expertise for their board. Among the skills expected to be in demand in the coming two years are environmental, social and governance (ESG), innovation, cyber security and digital expertise.

“The pandemic has impacted just about every business in Ireland – as it has the rest of society – and this movement in relation to requisite board members’ expertise and experience reflects this. So, while a majority (65 per cent) of our survey respondents says the requisite skills and experience on their primary board have not changed during the Covid-19 pandemic, a significant one third of the business leaders say they have changed,” said Maura Quinn, chief executive of the Institute of Directors in Ireland.

Awareness

“The shift certainly reflects a post-Covid heightened awareness of environmental, social and governance issues, but also sees innovation, cyber security and digital expertise as enhancing rather than replacing more ‘traditional’ competencies such as strategy, corporate governance and risk management.”

The majority which was 81% felt their boards had the range of skills and experience necessary to drive the business and mitigate significant risks.

Strategy, corporate governance, sales, marketing and business development remained the most common skills board members believed they brought, with innovation, cyber security and data protection among the less common skills.

However, ESG and innovation were among the top three skills that respondents said would be the most desired and needed over the next two years. Cyber security and digital skills rounded out the top five, with marketing, sales and business development skills dropping to sixth place. Business continuity planning also fell down the list of in-demand skills.

It is worth noting, too, that the crucial importance of strong business continuity planning expertise also came to the fore during the pandemic, and it served those organisations well that incorporated it into their boards’ strategic planning and risk management functions.”

Retrieved from https://www.irishtimes.com/business/companies/pandemic-triggers-change-in-in-demand-skills-for-board-members-1.4681090


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