Better Understanding

Now is the time to better understand the impacts the ever-evolving landscape of the modern workplace is causing for boards. Organisations are increasingly facing more complications and greater complexity. Although the terms “complexity” and “complicated” are often used interchangeably, it’s important to recognise that they represent distinct concepts, particularly in the context of an organisation’s board.

Complexity versus Complicated

The notion of complexity involves systems with many interconnected parts and variables that interact in unpredictable ways. While something that is complicated involves intricate but ultimately understandable structures or processes.

Something that is complex requires an approach that is holistic and interdisciplinary. It requires more of, working with, rather than against, the various elements and forces, provided it is understood within an ecosystem.

For the complicated, it can usually be approached using step-by-step methods and the outcomes are more predictable.

Hence, complex problems, being generally unpredictable in nature, benefit from an adaptive and flexible approach, however, complicated problems can generally be approached by using systematic and structured methods.

Challenge for Boards

How a Board can connect with the various complex and/or complicated matters which have become part of today’s organisational operating environment is still for many directors in need of a solution.

The myriad challenges that management is attempting to deal with often spills over into the Board’s monitoring and/or oversight role within an organisation. Even those boards that consider themselves to be effective in their governance role can find themselves underperforming due to frustrations in board meetings. How this may evolve is better understood when looking at some of the common issues that boards now feel drawn into navigating as part of operating in a more effective manner.

Meetings becoming less disciplined

• One or more of the Board members in seeking to be helpful in their contributions may rely upon knowledge or experiences that are no longer sufficiently current or particularly relevant to the circumstances being considered.
• Where one Board member may through a sense of frustration or feeling slightly disconnected to what the organisation is seeking to achieve, inappropriately dominates discussions or diverts discussions from the central issues needing a resolution.
• Without sufficient sense of connectivity, some Board members may find it hard to fully or productively engage with the critical issues that are set for review and therefore prefer to only tangentially involve themselves in any discussions.
• When feeling irritated, some Board members may become overly critical when they offer their feedback to the leadership team and this may undermine the benefit of the comments and general communications.
• Where Board members are unable to appropriately undertake the necessary preparation prior a Board meeting, then this often leads to their under-engagement and diminishing of the potential benefit of a robust Board meeting.

The Emperor Has No Clothes

A recent survey by PwC and The Conference Board found that:

• 40% of respondents believe their boards do not understand their oversight role
• 20% rate their boards’ overall effectiveness as poor
• 92% think one or more directors should be replaced

The above survey results appear to be a sound wake-up call for many boards. This suggests that there’s a significant gap in a Board’s understanding of their oversight role, which arguably is so crucial for effective governance.

Immediately, it seems that some serious questions may be raised with 20% of respondents rating their boards’ overall effectiveness as poor, leading to a need for comprehensive training and development programs for board members.

When adding a fact that 92% of the PwC respondents thinking that one or more directors should be replaced raises the possible quite urgent need for conducting a board evaluation. This would likely see an agreed Board decision around the right pathway for ensuring that the future Board will have the right mix of skills and perspectives.

Ultimately, what these findings seem to suggest is that more boards than not, are struggling with fundamental governance issues. If this is the likely experience of a Board, then it’s time for a reassessment of that Board’s roles and responsibilities to align with best practices. 

The Board’s Oversight Role

The high percentage of respondents who believe their Boards do not understand their oversight role indicates a critical need for clearer definitions and expectations involving Board duties.

Firstly, a sound understanding of oversight is a useful start.

Board oversight can be regarded as the Board’s actions and responsibilities which monitors and guides the organisation’s leadership team. In essence, what this does, is it involves ensuring that the organisation is operating optimally, with integrity and in compliance with relevant laws and regulations.

Key aspects of a Board’s oversight includes:

1. Ensuring the organisation has a clear strategy and that it is being implemented effectively
2. Identifying, monitoring, and mitigating risks that could significantly impact the organisation’s sustainability
3. Reviewing timely financial statements and ensuring the integrity of financial reporting
4. Ensuring the organisation adheres to the applicable legal and regulatory requirements
5. Evaluating the performance of the CEO and leadership team
6. Promoting and maintaining high ethical standards within the organisation

Directors understand that Board oversight is crucial for maintaining accountability and ensuring that the organisation achieves its goals while safeguarding its assets and reputation.

A Potential Disconnect and Agenda Misalignment

The data points to a potential disconnect between Board members and the organisations they serve. Bridging this gap is essential for better decision-making and strategic oversight. It is not unreasonable to suggest that given these results, it’s imperative for boards to engage in self-reflection and explore how they may improve their governance practices.

This may include greater priority be given to transparency, accountability and active participation in their oversight functions. Any Board that may lack a clear understanding of their oversight role will likely experience less than optimal governance practices. This misalignment may stem from a board needing to re-engineer its role within the organisation. And as part of this process the need to derive a more suitable agenda to facilitate this renewal.

Identifying the Board’s New Role

Following Covid, there are many descriptors of what organisations and employees are facing. One environment is described to be as BANI – Brittle, Anxious, Non-Linear, and Incomprehensible. This operates alongside of organisations still needing to operate in a Business as Usual (BAU) approach. Hence, Boards must engage more proactively and collaboratively with management at a different level for it to be meaningful and helpful.

Factors Informing This Change:

• Providing a more meaningful and value-creating impact
• Adopting a fully holistic focus
• Engaging more with staff and stakeholders
• Re-calibrating the board’s role for active oversight and value creation
• Collaborating directly with the leadership team

Navigating New Horizons

Over recent years (at least post GFC), Boards have generally operated on a BAU approach that evolved using a compliance and risk informed reporting format. This allowed an oversight role which saw Boards become ever more reliant on monitoring of records and compliance details. This has potentially served Boards appropriately over those years prior to COVID because it has been a period of reasonable stability, without more widespread moments of crises.

However, the dynamic and chaotic present environment requires Boards to rapidly rethink and substantially adjust their BAU approach and embrace a far more proactive transformation.

An Opportunity Perfectly Suited to Boards

Boards are invited to be more inspiring, sharing a grand vision for the organisation’s future that ignites excitement and passion among the leadership team and the organisation’s stakeholders. Boards are expected to:

1. reflect an organisation’s core values, strengths and passions
2. be more visionary and active students of the near and longer term operating environment
3. demonstrate a lived commitment to upholding of the organisation’s ethics and integrity
4. operate with high levels of transparency and accountability, ensuring that decisions are made in the best interest of the organisation and its stakeholders
5. show greater focus on Environmental, Social and Governance issues, integrating them into the core strategy and operations of the organisation
6. increasingly focus on sustainable, long-term value creation rather than short-term gains
7. deliver effective engagement with a broad range of stakeholders, including employees, customers, suppliers and the community
8. promote diversity and inclusion within their ranks and across the organisation
9. actively uphold high ethical standards and ensure that the organisation operates with integrity

By embracing this magical opportunity Boards will ensure that the complexities and complications facing their organisations, are managed in an optimal manner thereby delivering success and sustainability consistent with stakeholder wishes.

DISCLAIMER: This article is general only in nature and is not advice.