In this period of unprecedented disruption and uncertainty, navigating the future will require a sharp focus on both near-term and longer-term strategy and risk. The pandemic shined a light on the critical governance processes—particularly strategic planning and enterprise risk management—that most organizations will need to refine going forward. At the same time, climate change; environmental, social, and governance (ESG) issues; human capital management; diversity; stakeholder interests; and corporate culture are increasingly important.
How are lead directors helping their boards add value? What lessons can boards learn from the pandemic? And what should be the board’s primary areas of focus going forward? In discussing these questions with lead directors and nominating and governance committee members, three themes stood out.
Rethinking the board’s engagement in strategy and envisioning the future. Is the strategic planning process adequate to address the speed and disruptive impact of accelerating megatrends and assess the validity of fundamental assumptions that are the basis for the strategy and business model? What disruptive forces are on the horizon? In this environment, it is critical that the board encourage management to develop a vivid picture of what the future might look like—that is, where the industry and competition are headed—and its potential impact on strategy. Scenario planning is more important than ever, but boards should be careful that it is not too theoretical. What-if discussions should be more focused and concentrated on resilience—the ability to execute strategy when something goes wrong.
Identifying and assessing key risks. A twofold challenge for management is to identify emerging and evolving risks that are critical to the company’s reputation, strategy, and operations and ensure that appropriate controls and risk-mitigation plans are in place. How is the company’s risk profile changed in light of COVID-19, the recession, trade and geopolitical tensions, resurging debt, technology and business model disruption, elevated cyber risk, ESG concerns, deep-seated social unrest, the policies of the Biden administration, and an increasingly polarized America? Does the board’s committee structure bring the right focus and attention to the company’s critical risks? Are the risk oversight responsibilities of each committee clear? Does that allocation of responsibilities still make sense? While boards may be reluctant to establish an additional committee, considering whether a finance, technology, risk, sustainability, or other committee would improve the board’s effectiveness can be a healthy part of the risk-oversight discussion.
Elevating corporate purpose and ESG. It’s clear that the shift toward stakeholders, ESG issues, and longterm value creation is here to stay. While for many companies addressing ESG and stakeholder concerns as strategic issues has been a formidable challenge, the events of the past year have brought to light the importance of these concerns (particularly the “S” in ESG) and have helped companies identify those that are most critical to creating long-term value. What is the role of the board in helping ensure that these issues are priorities for the company—and that the company is walking the walk? How do the company’s incentive structure and culture drive ESG performance? How effectively is the company assessing and disclosing its ESG performance?
Key to all of this is developing and maintaining a highperforming board, which requires trust and a strong rapport between colleagues on the board. As one lead director told us, “Without trust, you cannot have the candor, the conversations, and the collective calm you need to face a crisis.”
This article originally appeared in the May/June 2021 issue of NACD Directorship magazine.