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How boardsof directors unleash their full potential to face current challenges

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Summary

The work of the board of directorshas become increasingly complex

What challenges lie ahead for boardsand how can they be tackled?

How can boards become more effective?

Are yesterday’s tools still effectivein today’s changed board environment?

Conclusion

References

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Tableof contents

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This paper finds that today's boards are spending more time on their mandates and oversee a wider array of topics than ever before. In a world of constant disruption and innovation, expectations for board members will continue to grow in the future. Boards have to play a more active role in overseeing business strategy and risk management against the background of digital and emerging technologies, trade conflicts and regulatory pressures, and various other megatrends.

Seeing the growing workload for boards, it is crucial that they can increase their efficiency and use their full potential. Therefore, the paper goes on to identify concrete ways to make board of directors more effective. Boards should:

1. Rethink composition and refreshment strategies and improve board diversity.2. Improve their dynamics through mutual trust and challenge.3. Implement better methods of performance evaluation.4. Adopt board meeting management tools for increased effectiveness.

Summary

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For a long time, investors and other critics have argued that the board of directors value consensus and the status quo over innovation, and limit their duties to the “basic tasks” of ensuring compliance, reviewing financial reports, and assessing portfolio diversification. However, especially since the 2008 financial crisis and its collapses and failures, there is increasing evidence that boardrooms have to be smaller, harder working, and more adept. In today’s world of constant disruption and innovation, a company’s board is under constant pressure to raise its game and oversee a wider array of topics.

01The work of the board of directors has become increasingly complex

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Shareholders raise their expectations

What is more, shareholders have become much more influential and have put more pressure on the boardroom. In the US, for example, institutional investors now own 70% of public companies.1 Every year, they are raising their expectations of the corporations and the board and are also communicating their interests more directly now. Shareholder activism has surged in popularity since the financial crisis and activist shareholders are increasingly targeting a broad range of companies, keeping their directors on their toes. At the sametime, the broad public and legislators are now demanding much more corporate governance than before.

Directors are stepping up their game

Examining these recent trends, it does not come as a surprise that the board of directors are stepping up and spending more time on their duties. Directors say they dedicate more time now to their board duties than ever before. A 2013 survey2 by McKinsey of more than 770 directors from around the world showed that between 2011 and 2016, they cut in half the gap between the actual and ideal amount of time they spend on board work. The 2018 “swissVR Monitor”, a survey3 of 448 members of Swiss company board of directors, confirms this trend. 56% of all respondents reported that their time commitment to their role had increased in 2017 (see graph below). Clearly, the board of directors are well aware of the fact that the operating environment is changing considerably.

Swiss Board Directors: How has the importance of the following areas within your specific mandate changed over the past 12 months?

TimeCommitment Interaction

with Management

Reputational Pressures Shareholder

Influence Interaction with External Audit

Remunaration

56% 53% 28% 27% 17% 11%

4%85%

4%79%

3%70%

1%71%

1%46%

1%43%

Increase Decrease No Change

(Source: swissVR-Monitor-I_2018)

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More time spent on work does not necessarily increase effectiveness

Experience shows that the time required for a board to do a good job is usually more than the directors initially expect. However, the amount of time spent on board work is not the only key factor that drives board effectiveness. In 2016, Russell Reynolds Associates’ surveyed 369 board directors from a dozen countries for its Global Board Culture Survey4 and found that moderately effective boards spend the same 200 hours per year on board-related activity as the most effective boards. The least effective boards, however, invested only 150 hours. In other words, going from good to great is not about adding hours, but rather about optimising how those hours are spent.

High-performers spend extra hours on broadening the board’s scope

A 2016 McKinsey survey5 showed that great-impact directors spent more time on forward-looking activities than their peers. They did not just limit their work to traditional board duties, but dedicated time to long-term business strategy, market review, performance/talent/business risk management, as well as mergers and acquisitions. For example, they dedicated eight extra workdays a year to business strategy. This illustrates the idea that working at a high level requires not only more time, but also more dedication and knowledge.

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Simplified representation of the SAML authentication flow.

In 2019 and beyond, expectations for corporate directors will continue to grow as companies become more global and more connected. A corporation’s board will play a more active role than ever before in overseeing business strategy and risk management against the background of these megatrends6:

• Digital and emerging technologies • Workforce transformation• Shifting consumer attitudes• Stakeholder pressure• Increased climate risk• Political polarisation• Rising income inequality

02What challenges lie ahead for boards and how can they be tackled?

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Global trends will put pressure on companies

Economic and political uncertainty will have greater impact on companies in the coming years. Not only are there signs for an economic slowdown, but intensifying trade conflicts, the still pending Brexit, and more regulations are further increasing business uncertainty. These macro trends affect many different markets and industries, and companies may find the impact of these interconnected macrotrends harder to foresee, control, and mitigate compared to internal business areas. This is confirmed by the 2018–2019 NACD Public Company Governance Survey7 of more than 500 US directors. Asked what five trends they expect to have the greatest effect on their companies, half of all directors ranked changes in the regulatory climate and the threat of an economic slowdown as the top issues.

What five trends do you foresee as having the greatest effect on your company over the next 12 months?

Boards must understand technological disruption and follow a long-term business strategyDisruptive risks related to technological progress are becoming even more important to the business environment over the next few years. Technology is growing exponentially and no company is immune to disruption. Artificial intelligence, e-commerce, blockchain, cybersecurity, the Internet of Things, and big data are just a few trends that have the potential to change the world. It is therefore no surprise that many directors are feeling outmatched by the ferocity of changing technology, emerging risks, and new competitors. A large majority (70%) of US board directors feel that their boards struggle to keep pace with these fast-moving advances and only 19% reported that they are either extremely or very confident in management’s preparedness to address atypical, disruptive risks.8.

Change in the regulatory climateEconomic slowdown

Cybersecurity threatsBusiness-model disruptions

Geopolitical volatilityPace of technology disruption

Key talent deficitsIncreased industry consolidation

Supply-chain disruptionsChanges in consumer spending/behaviors

Investor activismShifting workforce demographics

Climate changeAntibusiness sentiment/populism

48.948.3

41.839.8

39.038.8

38.637.0

23.220.8

18.415.6

6.15.3

(Source: 2018–2019 NACD Public Company Governance Survey)

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Hence, board members need better knowledge about the technology environment and its potential impact on long-term business strategy. They also need to assist and challenge management on the technological issues that matter most.

One way to keep up with technological pace could be to set up digital subcommittees and advisory councils.

Boards must view themselves as the ultimate catalysts for digital transformation efforts. Boards also have to see digitisation as a tool for positive change, as a way to improve the business model, and as a cost-cutter. Recognising what is at stake, 50% of boards plan to improve their oversight of digital transformation in 2019.9

Appropriate structures to provide effective oversight of companies’ risk profiles

Geopolitical volatility, increasing regulations, more and more cross-border M&As, and the disruptive transformation of technology will require stronger governance of risk management. Compliance functions need to be reviewed to confirm that coverage is appropriate with the growing risks, such as cybersecurity or data privacy, and to make sure that reporting lines are sufficient. These key risks will affect boards and organisations from financial, operational, regulatory, technological, and reputational perspectives. Investors and other stakeholders will further put pressure on boards to put in place comprehensive risk monitoring programs.10

Facing social issues and strengthening stakeholder engagement

A company is now expected to take into account the interests of a broader range of stakeholders (e.g. employees, customers, suppliers, communities, investors) and incorporate social issues into company strategy. A growing number of businesses are now voluntarily disclosing how they address stakeholder interests, primarily through proxy statement filings, sustainability reports, and other disclosures around environmental and social matters.

The real opportunity for boards and companies in 2019 and beyond is to drive a long-term-oriented business strategy. Companies that effectively communicate their social efforts are those that are best positioned to develop and maintain the support of a broad base of stakeholders even in this highly disruptive and transformational time.

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Enhancing a positive corporate culture

Corporate culture is likely to take center stage in coming years. Recent corporate scandals, ranging from cheating to meet government standards to pervasive sexual harassment, filled headlines and damaged several high-profile companies’ reputations. In the aftermath, stakeholders often wondered why the board did not spot and tackle these issues before.

The wrong corporate culture can pose real risks to a company - whether it is an issue of risk management, employee engagement, or corporate performance.

However, too many directors still rely on their gut feelings when evaluating corporate culture. Hence, corporate culture should become a regular topic on the full-board’s agenda. Some tools to enhance corporate culture include employee training, improving whistleblower programs, revised compensation plans, or the inclusion of a culture component in the strategic plan. At the same time, the board and management should increase their efforts to find useful metrics for evaluating culture, such as employee engagement survey results.11

Invest in talent management

If the above corporate culture issues are adeptly dealt with, it will also have a huge impact on talent acquisition. Talent is playing a much greater role in driving value, and talent strategy is taking a front seat as human capital becomes increasingly critical to competitive strength. Research shows that today’s talents, from top executives to early career professionals, seek to work for companies that have a clear purpose, a strong culture, and a respected reputation. At the same time, companies should also work to diversify their talent base in terms of traditional diversity, as well as in terms of diversity of backgrounds and innovative mindsets. Furthermore, leadership and the future pipeline should reflect the company’s diversity goals.

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So far, we have examined how the work of the board of directors has become much more complex in the last few years and how this trend is very likely to continue moving forward. The demand to stay on top of new technologies, an increasingly interconnected world, and a constantly changing business landscape means that every seat in the boardroom needs to be filled by someone who is performing well. The following chapter presents three ways for rendering boards of directors more effective: a more diverse board composition, boardroom dynamics based on trust and mutual challenge, and better board performance evaluation.

03How can boards become more effective?

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Diversity brings new voices to the board

Business demands and investor pressure are likely to change how boards think about composition and refreshment strategies. Board composition should support and reflect the strategic needs of the organisation. Today, most directors agree that diversity - whether in terms of experiences, skills, gender, race, ethnicity, nationality, or age - brings unique perspectives to the board and thus enhances overall performance. However, this is easier said than done. Imposing director term limits and mandatory retirement ages are an option, but it would also mean forcing out directors. Hence, board composition is only slowly changing. The number of female directors on S&P 500 company boards,for example, only grew from 16% to 22% in the last decade.12

Also, many directors have doubts about adding younger directors, who might be lacking experience, to their boards. Nevertheless, boards that are missing younger voices are also likely missing important perspectives in the room that might raise the entire board’s game. One case in point is the need to add digital savvy directors who can advocate for digital transformation. In summary, boards should find the right balance to keep up with high outside expectations.

Enhanced boardroom dynamics

On the other hand, greater diversity also increases the likelihood of tension among directors with different points of view and backgrounds. Hence, it is critical to create a boardroom culture that facilitates constructive interactions. A McKinsey survey13 showed that directors of high-performing boards reported an exceptionally strong culture of trust and respect, on the one hand, but also a challenging discourse between board members and the management team, on the other. The Russell Reynolds 2016 directors survey14 identified the three main characteristics that drive an effective board culture and that take a board from good to great:

1. A chair who is an effective facilitator2. Long-term horizon for strategic decisions3. Strong relationships with senior management

The survey analysis showed that the effectiveness of the chair was the single biggest differentiator between the most and least effective boards. The chair must possess the courage to make tough decisions in a way that encourages different points of view, opens debate, and ensures independence.

Second, effective boards use a time horizon of five or more years when evaluating opportunities and making decisions. A board that takes a long viewis more likely to encourage a robust discussion and challenge to management.

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Third, effective boards engage more with broader management. This provides them with in-depth insight on particular strengths and challenges of the various business units and functions, enabling them to ask better questions and demonstrate better strategic judgment. At the same time, directors must maintain their objectivity, independence, and oversight role.

Better and more frequent performance evaluation that leads to improvement

To address the growing expectations and complexity of their work, boards should thoroughly examine and evaluate their performance. While most boards still formally evaluate performance annually, leading boards do so more regularly, which encourages the directors to quickly improve decision making, dynamics, and performance. Effective boards also integrate assessment results into their board succession plan. Furthermore, transparency regarding board assessments towards stakeholders can pay dividends, especially during shareholder engagement on the topic.15

The McKinsey survey16 showed that striving-board directors are more than twice as likely as complacent board directors to say that their boards conduct regular evaluations, and more than three times more likely to say that their chairs ask for input after each meeting. But still, only one-third of these directors say their boards regularly evaluate themselves.

In some cases, the assessment process is a way to identify underperforming directors on the board and act upon it. For example through specific counsel and additional expertise.

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We saw in the previous chapters that the board of directors are facing both old and new challenges and that their members are expected to commit more time to their mandates in the coming years. They will also need to interact and meet more often with their peers, special committees, and management in order to keep up with the changing business environment. It is therefore crucial to ensure effective board organisation.

04Are yesterday’s tools still effective in today’s board environment?

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The problem of ineffective meeting organisation

Unfortunately, many business and board meetings today are considered a waste of time. Research17 suggests that top managers spend up to 23 hours per week, on average, in meetings, and admit that eight hours thereof are perceived as inefficient and unproductive. Many directors would agree that the time spent in meetings could easily be reduced if only the meetings themselves were more efficient.

The time lost in meetings is especially notable when we consider the growing workload and limited time of the board of directors. These findings do not come as a surprise taking into account the fact that meeting management has not evolved as much, nor as fast as other organisational systems. Despite fast-paced digitisation, many of the methods that were used in the past for organising and running board meetings are still in use today.

Outdated meeting management poses risks and lowers productivity

First, paper-based reports, documents, agendas, and boardbooks are still omnipresent in many boardrooms today. Nevertheless, paper has a lot of downsides, especially when it comes to editing, sharing reviews, and delivering documents to executives and board members. Last minute changes affect all the prepared documentation. Boardbooks and agendas are revisited and resent to all meeting participants, which wastes a lot of time and resources. Also, seeing that business leaders normally spend less than half of their workinghours at their companies’ headquarters, it is a hassle to carry around so much paper.18

Second, companies who advanced from paper-based meeting management to non-secure tools, like common email or online-storage solutions, are incredibly vulnerable to a large variety of cyber-attacks. Hence, it is much more likely that sensitive or even confidential data is getting into the hands of hackers and other unauthorised parties, which puts a company at great risk. Hence, if one is managing a meeting management process outside of a trusted and secure software, one or more of the following could happen:

• Information loss• Data breaches• Wasting time• Tracking KPIs ineffectively• Communication problems

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Preparing and organising meetings and compiling the associated documents is time-consuming. Proofreading documents such as financial reports or meeting minutes and making sure they are delivered to all board members is a big challenge. Sometimes, documents even get lost and the board of directors or administrators spend time searching for lost information.

The importance of business leaders in transforming meeting culture

A director’s most scarce resource is time. More so, a dysfunctional meeting culture is discouraging people and interfering with their productivity. Hence, meeting culture has to be transformed and organisations have to automate the meeting process in order to improve effectiveness. Thereby, it will be the chairman’s responsibility to act as a role model and bring more value to the meeting process. The chairman needs to ensure meetings are run in a dynamic, inclusive and genuine process, based on transparent and direct communication.

When companies start transforming their leadership meetings into time saving, cost-efficient, and highly productive management sessions, it will help achieve the companies’ overall goals. In addition, the shift in the meeting culture facilitates the empowerment of both the board of directors and all participants involved in the organisational process. This translates to attendees being constantly informed of any and all updates in a fast, secure, and effective way.19

The case for a meeting management software

This is where a meeting management software, or also called board meeting software, can step in. It offers board members a personalised, intuitive, and secure digital area that centralises all information necessary to organise and execute an efficient board meeting. Through the alignment between people, processes, and technology, it ensures that board of directors, executives, and administrators take full benefit of a standardised process.

With the means of a meeting management software, directors can access meeting documentation from anywhere in the world using any device, without the need to ever print any documents. It allows participants to prepare for future discussions before the meeting takes place and to consult, comment, and even edit documents offline while on the go and later synchronise their account. The technology also allows for push notifications and speeds up the meeting update process.

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A digital solution saves time and increases productivity

Thanks to a centralised meeting management tool, meeting preparation becomes more efficient in terms of content and time commitment. This allows directors to focus on the decision-making process and drive action throughout the meeting. Through this, meetings are turned from time wasters into value creators, and participants get time back.

What is more, a meeting management solution will not only render meetings more efficient and enhance corporate governance, but also save the corporate secretary up to 50% of time spent on setting up the agendas. With the help of industry-specific agenda templates, adapted to the regular quarterly meetings, this increase can be boosted to 80% when the secretary is able to adjust quarterly meetings from previous years to the current year’s agenda.

When choosing a provider, cybersecurity and data privacy should also play an important role. These characteristics are a must.

• Restricted access to the digital solution, with security levels adjusted for different user roles

• Strong authentication methods to ensure logins are secure• Compliance with international certifications and labels (e.g. ISO 27001)• Compliance with international laws (e.g. GDPR)

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How a digital solution drives board effectiveness

Making reference to the three main characteristics that drive an effective board culture and take a board from good to great, a board meeting software will:

1. Assist the chair to become an effective facilitatorFor participants to share their expertise constructively, they must have access to the company’s data in order to collect the information they require to analyse situations and to quickly identify problems and opportunities. The software will help the chair capitalise on all members’ expertise.

2. Allow more time to discuss long-term business strategyTechnology allows board members to reduce the time required to organise and hold meetings and produce reports. It enables them to dedicate more time to the company’s strategy and focus on long-term success.

3. Ensure positive interaction with management The software facilitates communication across diverse teams, reinforces interactions between and among board members and executives, and improves leadership quality.

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This paper has shown that the work of the board of directors has become much more complex in the last few years and that this trend is very much likely to continue in the coming years. The demand to stay on top of disruptive technologies, broader macro trends (e.g. trade conflicts, Brexit, regulations), and rising expectations for boards to cover broader topics means that every seat in the boardroom needs to be filled by a high performer.

While pressure on board members rises and many directors answer with increased time commitment, many organisations still use outdated meeting management methods and business meetings are seen as time wasters. Furthermore, paper-based and non-secure digital meeting tools pose significant risks to an organisation, as they increase the likelihood of data breaches, communication problems, and decrease efficiency.

Implementing a powerful board meeting management solution that is specifically designed for governing bodies could be a possible way to drive board effectiveness ahead of disruptive times. It offers a personalised, intuitive, and secure space that centralises all information necessary to organise and execute efficient meetings. The meeting management solution helps foster the three key activities that drive an effective board culture: assist the chair to become an effective facilitator, allow more time to discuss long-term business strategy, and ensure positive and deep interaction with management.

05Conclusion

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1. The evolving boardroom: Signs of change PwC’s 2018

Annual Corporate Directors Survey, October 2018.

2. The Board Perspective: A collection of McKinsey insights

focusing on boards of directors McKinsey & Company,

August 2016.

3. swissVR Monitor I/2018 A survey conducted by swissVR

in collaboration with Deloitte AG and the Lucerne

University of Applied Sciences and Arts, February 2018.

4. Global Board Culture Survey: Understanding the

Behaviors that Drive Board Effectiveness Russell

Reynolds Associates’, October 2016.

5. The Board Perspective: A collection of McKinsey insights

focusing on boards of directors McKinsey & Company,

August 2016.

6. Top priorities for boards in 2019 Ernst and Young Center

for Board Matters, 2018.

7. 2018-2019 NACD Public Company Governance Survey

National Association of Corporate Directors NACD,

December 2018.

8. Ibid.

9. Ibid.

10. 2019 Governance Outlook: Projections on Emerging

Board Matters National Association of Corporate

Directors NACD, 2018.

11. The evolving boardroom: Signs of change PwC’s 2018

Annual Corporate Directors Survey, October 2018.

12. Ibid

13. The Board Perspective: A collection of McKinsey insights

focusing on boards of directors McKinsey & Company,

August 2016.

14. Global Board Culture Survey: Understanding the

Behaviors that Drive Board Effectiveness Russell

Reynolds Associates’, October 2016.

15. The evolving boardroom: Signs of change PwC’s 2018

Annual Corporate Directors Survey, October 2018.

16. The Board Perspective: A collection of McKinsey insights

focusing on boards of directors McKinsey & Company,

August 2016.

17. Why Your Meetings Stink—and What to Do About It

Steven G. Regelberg, Harvard Business Review, January/

February 2019 Issue.

18. How CEOs Manage Time Michael E. Porter and Nitin

Nohria, Harvard Business Review, July/August 2018

Issue.

19. Executive and Board Portal Guide: How Can Executive

and Board Portals Optimise Meeting Costs, Productivity

& Security in Your Organisation? Sherpany, March 2019.

06References