The growing expectations on the performance of corporate board members may require a major shift away from how boards have operated up until now. According to a new survey from PwC’s Governance Insights Center and The Conference Board, “director bandwidth and the pace of change are testing board effectiveness.” While 41 percent of C-Suite executives polled rated their boards as excellent or good, the survey also revealed three primary reasons executives felt corporate boards were not more effective. Of more than 500 executives surveyed:
- 47 percent said directors serve on too many other boards
- 35 percent said boards are slow to react to emerging risks and opportunities
- 34 percent said boards are not keeping pace with digital transformation
In the current business environment that includes volatility in the capital markets, increased geopolitical risk, domestic political disputes and increased regulations, many boards might want to consider addressing the three issues the survey suggests are diminishing board effectiveness.
The survey says that to improve board effectiveness companies may need to consider making “adjustments to how oversight happens: reserving more time for forward‑looking discussion, engaging earlier as issues emerge, improving the quality and timing of information, and seeing that director composition and external commitments support the level of engagement the company now requires. It may also require boards to reprioritize dynamically as conditions evolve, putting into practice the agility executives see as essential to board effectiveness.”
However, if the board and management teams of companies don’t move proactively to improve their effectiveness, it is reasonable to expect shareholders to file an increasing number of shareholder proposals to push boards to address emerging risks, pursue new opportunities or make changes to business operations and board composition.
Additionally, to deal directly with the three major reasons boards are not more effective, corporate board members might consider the following:
Regarding directors serving on too many boards. Good governance best practices may dictate that companies limit the number of boards their directors can serve on. Currently, typical S&P 500 non-executive directors serve on two to three boards at the same time. That is probably a good limit for boards to adopt given the additional responsibilities boards have taken on in recent years and the increasing speed at which decisions need to be made to ensure positive outcomes.
Regarding boards being slow to react to emerging risks and opportunities. The use of new technologies can help directors come to decisions faster. Critical information can be sent to directors via board portals and other software. Directors can meet virtually—sometimes with little notice if necessary. Artificial intelligence can be used to analyze large amounts of data to provide insights that can improve the speed of board decision making.
Regarding boards not keeping pace with digital transformation. The board and management team need to commit to setting aside the resources to conduct a full-scale evaluation of company operations to determine how technological upgrades could affect overall company performance. Delaying this process can only slow company productivity and put board members at risk of being removed by shareholders for being too slow to act.
