Authors: Nathalie Dallaire Tracy Presisniuk
Board members are the backbone of an organization — providing guidance and orientation for long-term success. In a tumultuous business landscape with stiff competition, an organization's success is intrinsically tied to the capabilities of its board of directors.
Based on this, highly efficient boards are likely to have complementary qualities, with each member possessing skills that align to a unique competency matrix, which generates effective board governance and business success no matter if the organization is private, publicly traded, public or non-profit and no matter if members are paid or not.
Why it matters now
Rising global uncertainties and digital disruption are constantly influencing our evolving business landscape. A strong board of directors can lead an organization through these unpredictable times with agile thinking and adaptability. Furthermore, incorporating new technology and prioritizing cybersecurity for developing advanced business models should likely be on top of a board's agenda.
Additionally, organizations are facing decisions on how to meet critical sustainability goals, including environmental, social and governance (ESG) concerns.1 With increasing regulatory requirements, market volatility and stakeholder expectations, the ESG framework has become a key parameter for assessing an organization's sustainability and risk management capabilities.
Yet, according to a report by BCG and the INSEAD Corporate Governance Centre, 53% of the directors interviewed conceded that their boards aren't doing enough to address the strategic aspects of ESG issues.2
In light of this finding, current and future board members should have appropriate skills and capabilities to proactively anticipate and manage evolving risks on multiple fronts, propelling the organization towards stability and success.
The risks and pitfalls
As the urgent need for talented senior-level executives becomes ever more apparent, the potential business risk from poorly planned, non-strategic hiring of board directors increases. A lack of appropriate skills at the board level could lead to poor strategic decision-making, which in turn leads to lost opportunities and management frustration.
Eventually, in such a situation, organizations struggle to retain talent, maintain regulatory compliance, create stakeholder trust and minimize reputational damage, which could create significant turbulence in an organization without strong and relevant leadership skills. A strong board can potentially avoid such issues with the agility to revisit operational models and take the lead in bolder and faster risk assessments where required.
Best practices
Building a high-performing board can benefit from a scientific approach. The following are some of the best practices to consider when hiring:
Commitment to diversity
Homogeneity can lead to complacency and a dilution of management's decision-making ability, which is high-risk in the current competitive and dynamic business landscape. On the other hand, having a diverse team encourages the inclusion of different ideas and perspectives. While demographic diversity could now be viewed as essential, diversity of thought and experiences is equally important.3
Independence in selection and compensation
When directors are chosen independently after fair consideration of their skills, qualifications and expertise, they bring valuable perspectives to the table, leading to better discussions and innovative ideas. Furthermore, when communications are clear about directors' tenure, performance, competence and compensation, high-calibre directors may feel more invested in the organization, empowered to make decisions independently and contribute actively to its growth strategies.
Leadership assessment and development
Leadership assessment and development (LAD) processes can be key to successful hiring, from recruitment to succession planning. When conducted thoughtfully, they serve as an effective two-way communication channel : They enable the organization to gain a more comprehensive insight into the candidate and their compatibility with the company culture. At the same time, the candidate becomes aware of the organization's expectations and how closely they're aligned. This awareness can go a long way in building valuable long-term business relations.
Moving forward effectively with digitization and artificial Intelligence
The artificial Intelligence (AI) question has entered the boardroom faster than we thought. It has highlighted the need for board members to come to grips with — and indeed embrace — new technology. How leaders welcome digitization and engage with AI and data analytics in their business can have a significant impact on the future success of an organization.4
During a Yale leadership summit, most CEOs (87%) agreed that AI presents significant business opportunities and transformative potential.5 However, opinions were notably divided regarding its potentially catastrophic implications, with 42% of CEOs expressing concern about its risks. This divergence highlights the importance of a balanced approach, where companies leverage AI opportunities while implementing robust governance, ethical guidelines and risk management strategies to mitigate potential dangers.
Closing thoughts
Despite the increasing professionalization of non-executive director roles on boards, organizations must apply equally rigorous efforts and processes to attract and select the most suitable candidates for these positions.
Given the importance of executive board composition, it may be worth considering professional assistance from independent experts specializing in governance and executive search. Providing a much-needed objective oversight, developed through wide-ranging experiences, our experts at Gallagher can help guide today's organizations in implementing modern practices in board hiring and governance models.
On a wider level, our experts can also help in implementing LAD assessments, competency grids and corporate governance, fostering trust and confidence among investors and shaping organizational growth, now and into the future.
For more information and consultation, please contact a Gallagher representative.
