Boards play a crucial role in monitoring and providing strategic direction to executive teams. But, as boards struggle to respond to changing societal pressures, they are failing to lead effectively and are lagging behind in the transformation of business.
EY’s recent report, Board of the Future highlights the key areas where boards need to fundamentally change in order to respond to societal challenges. These include reimagined ways of working, digitalisation and sustainability.
Dr Dean Blomson, transformation specialist, board governance expert and author of EY’s report spoke to Digital Nation to discuss how its findings can assist in developing future-fit boards.
“When you look at enterprises listed or otherwise, we know that they've got quite distinct operating models and those operating models are generally speaking suited to their purpose and their context and their strategy. When you look at boards though, not so much. Boards tend to be more homogenous,” says Blomson.
“That should strike one as odd. If the enterprises are different, the shareholders may be different, the strategies may be different. Why do their governance arrangements look so similar?”
This homogeneity is the most apparent when it comes to board participants.
According to Megan Motto, CEO of the Governance Institute of Australia (GIA), “A very old composition of a board, a very traditional one is, as the old adage says; stale, pale and male.”
While Motto highlights the impressive march towards gender diversity in the boardroom and asserts that boards will reach gender parity by 2030, cultural diversity in comparison, is moving at a snail’s pace.
GIA’s 2021 Board Diversity Index, measuring the ASX 300, reveals that 90 per cent of directors have an Anglo-Celtic or European background, and while there is some evidence that Asian representation is growing, it does not effectively represent the changing complexion of the Australian population.
Blomson says, that while the demographics of boards are fairly visible, we know far less about the psychographics.
“And of course, that's certainly the more interesting aspect for me, how they think and behave, how they weigh up risk, how they make decisions, etc. And that's uncharted waters,” he says.
Ken Boundy, chair and director of various companies and non-executive director at listed Australian Bauxite supports this notion, and urges boards to consider cognitive diversity in their composition.
“It's not just gender diversity that we need, we need cognitive diversity, the ability for people to look through a different set of lenses. And these lenses might reflect better the community views or the customer's views. And they can often flow from age or gender or social background. They might be different industries, they could embrace people like scientists and psychologists, and IT specialists, for example,” says Boundy.
Bridget Gray, VP IT Services at consulting firm Korn Ferry is responsible for placing directors onto boards. In recruiting directors Gray says that she looks for individuals who will question the status quo.
“We don't want that group think at board level, we do want people who are going to challenge the thinking, think about an industry from a completely different perspective. So we are looking for someone who really isn't there just to validate a strategy, they're there to really challenge and shape it and drive it in the right direction,” says Gray.
One of the biggest challenges facing greater board diversity is unconscious bias filtering through informal recruitment processes.
Where rigorous and professional recruitment processes are commonplace for executive roles, Motto says that board appointments have traditionally been highly networked.
“For the receptionist in an organisation, we would create a job description, we would put it to market, we would have multiple candidates, we would read the CVs, we would put them through their tests, two or three interviews, you know, maybe a trial run, and before they even got the job. And yet for the board, it was you know, who do we know? And let's tap someone on the shoulder,” says Motto.
As boards partner with headhunting and recruitment agencies as well as external experts and subcommittees, this rigour is increasing she says.
According to Gray, “organisations in Australia are now inviting organisational strategy firms like us to come in and really assess their board and give feedback on perhaps how they could upskill or compliment or change the board. So people are looking for a lot more independent advice around that.”
The digitalisation of an enterprise is a key driver of change for boards.
Blomsom says that less sophisticated boards are those still discussing the need for digital literacy, whereas future-fit boards understand how technology can enable better decision making.
“Digital is a very long spectrum, right from AI, to automation and robotics, to virtual reality, etcetera. And so working out what digital skills they need, is really critical,” says Blomson.
Not only is it crucial that boards have the digital insight to effectively monitor and respond to the increasing threat of cybersecurity, but the adoption of digital in the boardroom can assist to create efficiencies in director’s growing workload.
“If you speak to most company secretaries, most CFOs, most CEOs, they will tell you, it is still an enormous manual effort to provide information to the board in a timely and digestible way,” says Blomson.
“I think there is a huge opportunity for dialogue amongst the executive team, first and foremost, and then upwards to the board about how do we make decisions in a way that's far more agile? How do we get AI to help us process the huge volumetric flow of data and provide actionable insights to us?”
For directors that are not prepared to upskill and transform with changing societal conditions, Boundy says, they need to be prepared to walk away from their seat at the table.
“It's not only the industry knowledge that the directors need to have, the agenda now embraces things like cyber security, climate risk, digitisation, sustainability, and if directors aren't prepared to learn and get up to speed on those issues, they need to move on.”
Credit: The video was produced by Josh Lundberg, Matthew Ryan and Tejas Bhat.