More accountable, transparent, and strategic: Meet the board of the future
The board of the future will be heavily focused on business resilience having been through a global pandemic, flexible work discussions will impact boardroom strategy and transparency between board and management will come to the fore.
And strategy — and strategic thinking — will be critical for the future director, a major report released by Governance Institute of Australia today has found. The Future of the board report is based on a survey of 550 non-executive directors, CEOs and C-suite executives, company secretaries and senior governance or risk management professionals, as well as a working group comprised of senior directors and industry leaders.
More than two thirds (69%) of survey respondents are currently on a board, with 40% on more than one.
By casting forward to 2025, Governance Institute of Australia Chair Pauline Vamos said the report is a roadmap for directors — current and aspiring.
“We are about to see the pressure turned up on boards as shareholders and the community expect directors to be more in tune with the full range of ESG or non-financial risks, navigating fallout from the pandemic, and responding to a regulatory and technology landscape moving at hyper speed,” Ms Vamos said
“This report — Governance Institute’s major thought leadership piece for 2021 — lays out the challenges the board of the future is likely to face, what issues need to be on the radar now, and the skills and attributes board members will need to be effective.”
ESG and board accountability in the spotlight
Board accountability and responsibility is set to soar towards 2025, with the vast majority 92% of survey respondents agreeing on this, and 66% agreeing strongly.
Environmental, social and corporate governance (ESG) issues will also be in the spotlight with 89% saying boards will need to align their purpose with community values.
“This report shows that social license to operate will be the number one ethical (or conduct culture) challenge for board directors in 2025. The ESG agenda is building, and boards need to ensure they are engaging, reporting — and acting on or adapting to — the non-financial risks that are and will impact their organisations,” Ms Vamos said.
Technological disruption (78%) and flexible work models impacting strategy (79%) are the other major future factors to watch out for, the survey found.
How many boards directors should be sitting on, and for how long, has been put under the microscope in the report, prompting strong survey findings and debate among working group members.
More than 70% of survey respondents say there should be limits on the number of boards a director is able to sit on, with 54% saying three to four boards should be the limit.
The survey found that respondents from ASX listed organisations were least likely to believe there should be limits on the number of boards a director can sit on.
Limits on director terms was also seen as a priority for 84% of survey respondents, with 24% advocating for a term of less than five years and the majority (59%) wanting term limits of between six and 10 years.
With significant recent steps forward on gender diversity, attention is now turning to the diversity of director skills, experience and attributes with these highlighted as most important regarding board diversity and inclusion, with gender and ethnicity in third and fourth place.
“We know boards are becoming more diverse, but we cannot let the momentum drop. Greater diversity of thought will mean the chair must be a manager of diverse viewpoints, finding a consensus among diverse participants. As our report states, the chair will be tasked with creating an inclusive culture in the boardroom, which in turn will set the tone on diversity throughout the organisation,” Ms Vamos said.
The board director of the future — at a glance
- Top challenges for boards in 2025 will be:
- Internal: Sustainability of business #1.
- External: Climate change, fallout from COVID-19, economic instability, technology disruption, and cybersecurity risk.
- Top three skills required: Expertise in strategy, leadership and management skills, and technological know-how
- Top three attributes required: Strategic thinking, critical thinking, values and ethics
- Key ethical challenges: Social licence to operate, workplace conduct, culture.
- To prevent corporate failure, focus will need to be on: Ethics and values, culture, financial management.
- Top factor determining dynamic between boards and management: A culture of transparency, trust and respect between board and management.
- Major technological disruptors will be: Cyber security and data privacy, understanding risk of new technology, governance and compliance.
About the Future of the Board report:
This is the third in Governance Institute’s ‘future’ thought leadership series and follows the Future of the Governance Professional and Future of the Risk Management Professional reports.
Three main areas of research were carried out to inform this report: A working group of directors and company secretaries to discuss key themes relevant to the board of the future, an extensive survey with 550 responses, plus we reconvened our working group for a second session to consider the survey responses and reflect on the themes that emerged.