Hot Topics for 2022: What other boards are missing

Good practices to consider…

Low Score 1.  Spend more time discussing how technology is driving your strategy.  It’s a tricky topic for many boards as, of course, it gets technical very quickly.  But the first step is to give it enough space in board discussions.  The strategy day is a good place to start.  But from what we’re hearing, more is needed.  Possibly a deep dive or two on specific aspects (interfaces, processes, data…)?  And maybe more board training with expert briefings, pitched at a strategic level?

Things to avoid…

Do not allow technological change to be pushed down the agenda by concern over cyber risk.  Just because IT is common to both doesn’t mean that cyber risk can replace strategic risk.  And don’t let technology strategy be swamped by many other strategic issues.  Because many feel limited by their own understanding, it can be side-lined by strategic changes that are more familiar.  And if the Board doesn’t have enough expertise to feel confident, you can bring in experts from both inside and outside the company.

Good practices to consider…

Low Score 2.  Work out what more can be done to satisfy the Board that the organisational culture is what it wants it to be.  That means drawing more on the many indicators that already exist across the organisation (HR, compliance, IT controls, audit, safety…), looking at them outside of their silos using a culture lens, and asking “taken together, what do all these tell us?”  In addition, ask the leadership team what they do as individual leaders to make sure that behaviours are sound … and how they know what the behaviours actually are.

Things to avoid…

Try not to rely too much on the staff surveys.  Employee satisfaction makes a valuable contribution to the picture, but it is just one element.  Try also not to consider that occasional contact with staff through site visits, interaction at board and committee meetings, etc, is enough: these are necessary, but not sufficient.  Culture is a slippery, unquantifiable topic that we see many boards struggling with.  But with a bit of imagination and more space for discussion, it is possible to build a picture from many different sources (and at very little incremental cost) that will give directors increased confidence.

Good practices to consider…

Low Score 3.  Take stock of how you’re approaching the IT security challenge.  It’s not surprising that this is an area of concern: most boards we see are struggling with oversight of how this ever-changing risk is being managed.  It is not going to go away and it’s widely accepted that it’s a case of “when, not if”.  So boards need to focus on what the planned response looks like: response plans across different types of attack (ransomware, critical system penetration…), crisis responsibilities, external communications, customer management, testing the plan…  But, before all that, take stock of the Board’s own ability to ask the right questions and, crucially, to understand the answers, bringing in additional expertise as needed.

Things to avoid…

Avoid looking at too narrow a landscape.  In-house system risk management is complicated enough, but what about third-party systems and dependencies?  Is the Board making sure that management is  discussing the full breadth of the risks? … and is then factoring the whole picture into its oversight of the response planning?  Typically, we see boards that are very alert to the risk in generic terms as “cyber risk”.  But few are asking themselves whether their questioning is comprehensive enough.  And, even at committee level, it’s often limited to listening to the CIO’s assurances, rather than standing back to check whether the right questions are being asked –     possibly with objective help from outside the organisation.

Good practices to consider…

Low Score 4.  Take a more structured approach to incorporate “ESG” into strategic decision-making,  making the time to discuss the changes in depth.  It seems like early stages, but Net Zero isn’t that far away.  And that’s only part of it: evolving strategy to respond to climate change needs to take into account societal shifts, changing stakeholder expectations (your staff as well as outside the organisation), how this impacts the way board governance works… to highlight just a few of the issues.

Things to avoid…

Resist slipping into the mindset that ESG = E.  E might be getting most of the headlines at present, but the S and G are likely to grow in significance as stakeholders’ thinking develops.  As a first step, boards need to work out what ESG – all of it – means for the business, and then tighten up the way the term is used.  Because that will influence mindsets, agendas, reporting, accountabilities, information etc.  It also means getting at least partially integrated pictures coming into the Board, rather than slipping into silos with different and separate reporting on the individual components.

Good practices to consider…

Low Score 5.  Create space in the agenda to consider the big trends.  Based on the typical responses to our board review questionnaires, many boards recognise that a lot of big shifts are taking place around them.  And they’re frustrated that they don’t have the time to work with management in thinking through the opportunities and threats, or the impact both on how the organisation runs and on its people.

Things to avoid…

Never take the view that it’s a bit of a waste of time thinking through the “unknowns”, viz. the big issues that appear somewhat distant in time and relevance.  Keep in mind that the type of trends now impacting organisations are not that distant, and they will have a far reach.  AI, geopolitical shifts, customer behaviours, social expectations, employee lifestyle objectives… these are exactly the sort of issues that get squeezed out of board agendas and meetings by the more immediate.  Virtual meetings don’t readily lend themselves to these sorts of discussions.  Strategy awaydays should be a good forum, but they too are usually pressed for time.  Nonetheless, time’s moving on, whether or not the Board moves with it.  So, solutions need to be found to make certain these discussions are taking place now.

Good practices to consider…

What are people happiest about?  The highest scores are mainly about the way the Board works: working together on a basis of trust and openness; making sure directors’ responsibilities are met (“reasonable steps” in the formal sense); getting the views of everyone around the table; the Chair’s chairing of meetings; and getting good support from the Company Secretary.  The first of these – dynamics – might have been helped by the pandemic: crisis tends to either make or break a board.  The other strengths are vital but perhaps not as universal as our results suggest – they reflect the fact that our client base is heavily biased towards those boards that take this stuff seriously and keep working at their effectiveness.

Things to avoid…

And what are people less happy about?  Accepting the status quo as “effective”.  The past is no guide to the future when it comes to board effectiveness, as many have found (sometimes gradually, sometimes very abruptly).  Boards need to move with the times, and the way they work together might need to develop too.  Even allowing for virtual working, it’s easy to slip into a new year in the same groove.  And it might be right to avoid change for change’s sake:  “if it ain’t broke…” might well be a good maxim when the environment is unchanging.  But as we enter 2022, how many of us feel that is true?