How is the pandemic reshaping the role of board members?

The COVID-19 pandemic has exposed significant financial and ethical vulnerabilities in an economic model we have come to rely on unthinkingly - and that has led board members across the world to reassess their roles in three distinct ways.

First, in the context of oversight and strategy; second, in terms of operational resilience and long-term sustainability of business models; and thirdly, how they can satisfy a broader set of stakeholders and build a more inclusive economy, supporting the shift to stakeholder capitalism.

That’s one of the key conclusions from a new survey that assesses the opinions of more than 150 global board members to understand how they think the pandemic will influence that stakeholder evolution.

Aside from the aforementioned vulnerabilities, many leaders acknowledge economic and societal dependencies on under-valued social capital and resources. Board members feel the crisis is challenging the robustness of organisations’ strategy, business models and the substance of contingency planning. At the same time, many recognize the gaps in boards’ proximity to their business, level of engagement with stakeholders, and style of governance.

Risk and oversight have been brought into sharp focus in this increasingly uncertain world, as leaders protect liquidity while considering the implications of difficult decisions and trade-offs on achieving this. Nine out of 10 surveyed think the pandemic will change how organizations balance risk and resilience. The majority feel boards will reassess the level of priority placed on risk, internal controls and the substance of contingency plans.

Rebalancing risk in the immediate term without abandoning longer-term strategic priorities and reducing over-dependencies will be fundamental to making organizations more resistant to future shocks, and will help secure the foundation to transition to stakeholder capitalism. Four out of five respondents believe boards will focus on helping executives evolve the business model to cope with increasing uncertainty. In order to provide the right strategic guidance on these issues, the majority recognize boards will need a better understanding of society’s needs and the environment in which they are operating.

When asked how they think boards can help executives build greater organizational resilience to uncertainty, six key themes emerged.

1. Create co-ownership of purpose, values and role in society

The crisis has been a test of purpose in action, how under pressure purpose and values have guided decision-making, behaviour and the quality and consistency of communication. Organisations should go one step further to ensure their purpose and values are not only clear and understood, but owned by all stakeholders such as employees, suppliers, customers, and investors. This alignment can build trust and enable rapid decision-making for the best interests of all stakeholders, and provide the ability to add value for the organisation’s long-term sustainability.

2. Build critical agility as a core competence

Building an agile culture of continuous learning will encourage executives and teams to embrace experimentation and uncertainty. Organisations should leverage the crisis as a catalyst for change – product and service innovation, new business models – and different ways to engage with stakeholders to better understand changing needs and identify new opportunities to generate value.

3. Ensure more robust strategy planning for long-term value protection

Driving efficiency, maximizing EBITDA, for the short-term can damage the long-term interests of the business. Boards should place greater emphasis on guiding strategic direction, measurable objectives and long-term value creation. This includes reducing debt and building a bigger capital buffer to enable business continuity and ultimately survival. Better quality data and new metrics will be crucial to enable faster decision making for this and all of the themes.

4. Prioritise and invest in systematic management of risk and organizational impact

Having a better understanding of the business model and wider environment will be crucial to more effective risk management. Encourage leaders to widen their focus on risk beyond the immediate financial and operational, to identify the economic, social, environmental and reputational issues most material to the business and its long-term sustainability. And of equal importance reducing the broader impacts of the business itself.

5. Improve business continuity planning including testing interdependencies

The crisis has highlighted the interconnections between business and society and revealed over-dependencies on undervalued social, human and environmental capital. More robust contingency and scenario planning incorporating these relationships, and regular reviews to stress test their substance, can help mitigate risk to businesses’ reputation, resilience and sustainability and at the same could reveal new opportunities.

6. Leverage board experience, individually and as a cohesive group

Leaders should place greater priority on human capital, the changing nature of work and attitudes of the workforce to help nurture talent to drive the recovery and create a culture of change. The board sets the tone at the top. Reviewing the boards’ composition, experience and values is key to leveraging its diversity and increasing engagement with management and wider stakeholders. Invest in talent, training and continuous development to build skills and critical capability.

60% of board members think the crisis will lead to a change in the role and responsibilities of boards. Two-thirds think business has a growing responsibility to increase the wealth of society not just shareholders, and the same number believe it will take up to 10 years to integrate the principles of stakeholder capitalism principles into their governance model and practice.

While the survey found the majority of boards members believe board leadership and company purpose will be one of the most relevant governance principles in the future, for some, transitioning from a shareholder primacy to a true stakeholder capitalist model will require a significant shift. Time is of the essence; volatility is here to stay. Boards can’t delay engaging with this broader business imperative. They have to lead the way.

The research was conducted by A Bird’s Eye view in partnership with the FT Board Director Programme.