How should boards prepare for 2023, when the road ahead is so uncertain?
In September, America’s most influential directors’ organisation issued a stark warning about how the role of boards would develop.
It wasn’t all bad news, but when the phrase “ever more turbulent and unpredictable” is thrown around, you know the road ahead won’t be easy.
However, while this may be a cause for worry, we mustn’t forget to approach it with a ‘glass-half-full’ outlook. Future challenges are, after all, simply an invitation to adapt.
In the US, the National Association for Corporate Directors (NACD) issued a report in late September titled The Future of the American Board Report: A Framework for Governing into the Future. It contains several warnings for board directors.
- The pandemic, supply crisis, evolving digital trends and other changes have compounded to make the board environment “ever more turbulent and unpredictable”.
- These challenges will likely be tougher than boards are used to.
- Addressing them will require boards to completely re-think their approach and incorporate new tactics.
“The boards of directors who guide corporate activity also need to adapt to assure that corporate governance keeps pace,” said Bill McNabb, co-chair of an NACD Commission responsible for the report.
“As boards adapt to these shifting responsibilities and priorities, the Commission anticipates that governance will focus on corporate purpose as the force that motivates and unifies corporate activity,” his colleague Sue Cole added.
NADC’s recommendations: how should boards prepare for 2023?
The report has focused on a ten-point framework for the future, which is far-reaching and incorporates all aspects of governance.
The ten points are purpose, accountability, objectivity, information & reporting, stakeholder relationships, talent, culture, commitment, refreshment at the board level, and board engagement.
You can read more about the ten challenges here, but the shortest summary is that they encourage companies to think about their core purpose and ask, ‘what do our stakeholders need us to be here and now?’
It does this by encouraging directors to be critical thinkers, proactive leaders, and global networkers.
Are these recommendations useful?
- They cover the areas of governance that boards are used to, but…
- They approach them with a broad mindset – not just focusing on profits for shareholders but on employees, consumers and political trends as well.
- They incorporate the current business landscape shaped by the war in Ukraine, the supply change crisis, changing social values and polarised politics.
As with any recommendations for boards, some will matter more than others. It depends on the company and industry you’re reading this from.
Putting the framework into context
The framework feeds into an enormous change around boards and their role in an organisation’s development. This change has been underway for decades, not just the last two years.
It’s all to do with the power boards have. In previous decades, most took on little to no responsibility in decision-making. They were expected to be ‘yes-men’, merely conforming to the executives’ outlook.
That era is over.
Boards are no longer rubber-stamp bodies designed to support executive decision-making automatically. Instead, they are active players in an organisation, using independent thought and critical thinking to drive success.
NACDs framework takes that change one step further. It’s not seeking to teach boards they have responsibility; most boards know that by now. It’s seeking to teach boards that this responsibility – and, by extension, their impact – runs far deeper than they thought, giving them the ability to shape the entire foundations of their businesses.
It’s a message that carries many nods to ESG. Both are broad and easy to get lost in. But both aim to encourage companies to analyse their duty to all stakeholders, not just those who share in the profits.
In summary: how should boards prepare for 2023?
Boards define the company’s purpose, and in 2023, society will want this purpose as clear – but, at the same time, as broad – as ever.
It will take a lot of work to get right.
“We predict the work of the board will become more complex in an ever-more-turbulent environment,” the NACD said, stressing that its framework would benefit “society at large”.