— June 27, 2019
The immense pressure on company boards to be more active and involved in developing and executing strategy will only intensify with today’s dynamic, innovative economy. Board positions are no longer seen as a ceremonial role or a perk for executives, and the days of the disinterested, ineffectual board member are over. Modern board governance is a far more proactive undertaking, and many organizations are taking steps to change the composition of their boards to encourage a greater diversity of thought and promote the agile leadership qualities necessary to compete in a business environment beset by disruption.
Board Diversity Challenges
Available data suggests that corporate leadership has a long way to go. Not all companies share demographic data about their employees, but among those companies that do, 80 percent of their high-ranking officials are men and 72 percent of those men are white. The racial disparity holds across gender, with 73 percent of all senior executives, both men and women, categorized as white. Compared to the American workforce as a whole, Latinos/Latinas and African Americans are underrepresented in senior leadership by nine and thirteen percentage points, respectively.
These demographics predictably translate into a lack of board diversity. Many public companies are making corporate board diversity a priority, but leadership has struggled to recruit diverse board members due to insufficient investment in developing women and minorities in their talent pools in the first place. This trend can be seen by the fact that 24 percent of women who sit on boards actually sit on more than one board, compared to 17.9 percent of men. The clear implication here is that companies are turning to established board members to meet their diversity goals rather than identifying new candidates.
“There is a need for more women on boards,” says Matrice Ellis-Kirk of RSR Partners. “There needs to be broader diversity of thinking and diversity through the lens of gender diversity.”
Too much stability and tenure in the boardroom is part of the problem. E. Thames Fulton of RSR Partners provides the following insight: “When boards shrink in size, coupled with the low levels of director turnover, it makes diversity a challenge. The spotlight is on greater diversity, but the pace of openings is insufficient to move the needle in a short time horizon.”
“Some boards also lack the cultural diversity and are reticent to change out board members when new skills are needed,” Ellis-Kirk points out.
Other Challenges Facing Today’s Boards
First introduced by the U.S. Army War College in 1987, the acronym VUCA (volatile, uncertain, complex, ambiguous) was gradually adopted by the business world to refer to the inherent instability and unpredictability of the modern, multilateral world. Corporate boards operating in today’s VUCA world need members who have experience with change management and transformation. Massive disruptions involving new technology as well as mergers and acquisitions have forced companies to respond quickly on the basis of less-than-perfect information.
Effective risk management, implementing key change initiatives, and improving talent strategies – all while engaging with the concerns of shareholders – are among the key issues facing today’s boards, according to Ellis-Kirk.
“Boards are looking for directors who have change management and transformation experience given the complexity of today’s business decisions,” she observes. “Many (current) board members are retired and are not continually learning to remain relevant. They lack the skill set needed in today’s dynamic business environment. They are not agile.” Agile board members must have the flexibility to connect with others, adapt to rapidly changing circumstances, and balance conflicting needs in ways that still deliver positive results for their companies.
Research also suggests that flatter, less hierarchical board structures can help promote the diversity of thought needed to develop innovative solutions to these challenges. Without an egalitarian board culture that encourages open communication, simply having greater demographic diversity will not necessarily translate into business success.
“Some boards also struggle with younger members who may not seem as credible, yet they bring expertise in key areas (e.g., digital),” Fulton points out. “Boards are often overly collegial. There is a desire to maintain collegiality at all costs, which is a negative.”
Agile Leadership on the Board
The principles of agile leadership can be tremendously beneficial for board members. In open discussions about strategic initiatives, they must be able to connect with other members to use influencing strategies effectively. They must be self-aware, recognizing their own blind spots and biases to make better decisions based on critical thinking rather than collegiality. An ability to connect means board members are capable of building relationships with the company’s CEO and senior management, giving them a direct path of communication regarding the latest strategic situations and business realities on the ground. Being consistently engaged with the business and delivering onboard commitments over time builds credibility and allows board members to drive accountability more effectively.
They must also have the adaptability necessary to take a strategic view of operations and identify patterns in the noise to make rapid decisions that can mean the difference between a transformation initiative succeeding or failing. “Directors need to be able to navigate ambiguity,” Ellis-Kirk says. “They need to understand complex business landscapes and how to drive results.”
A dynamic, proactive board is increasingly important to success in a rapidly changing world. Effective board governance involves identifying big-picture goals and prioritizing resources accordingly. Board members must set the objectives that determine how their company balances the organizational priorities while minimizing disruption and tradeoffs. With this emphasis on setting the tone for senior management and communicating decisions to shareholders, corporate boards can provide genuine leadership rather than serving a ceremonial role.
In order to diversify boards, attract and retain talent to boards, and become a vehicle for change for leadership, it’s vital to assess existing and future board members for agile leadership qualities. With agile leaders capable of connecting with others, adapting to shifting circumstances, and delivering positive business results, effective board governance could quickly become a competitive advantage and key differentiator for successful companies.