Tag Archives: #covid

Board best practices in an era of hybrid corporate governance

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Board best practices in an era of hybrid corporate governance

What are the current board best practices across different governance situations, different ownership forms and jurisdictions, and different industries and maturity of companies?

By Karen Loon and Pamela Ravasio, IDN Board Members

On 26 April 2021, over 100 INSEAD Directors Network (“IDN”) members had the opportunity to share their international experiences of best practices of hybrid corporate governance in a webinar facilitated by Liselotte Engstam IDP-C and IDN board member.

What were some of the current corporate governance best practices which our global members have observed?

 

The increasing importance of ESG and sustainability

Sustainability and ESG are increasingly hot topics in the boardroom.  It was highlighted that organisations that have so far embraced and succeeded in making good progress in ESG and sustainability have a track record of being more purpose driven.  For organisations with a different history and have not been predominantly purpose driven from their inception, it is much harder, and they have to ‘learn’ or even reinvent themselves to make significant progress in this area.

This is a challenge that not only businesses face. Even many NGOs and not-for-profits who have so far fared well focusing on single issues (for example, animal rights and veganism), have to update their ‘raison d’etre’. Adjusting to a world where not single, but complex and multi-dimensions ESG and sustainability challenges need addressing is something novel for many of them.

It can hence be said that, for organisations, the process towards embracing and embedding ESG and sustainability needs to be viewed as part of change management and culture change exercises, as it will have significant implications on new business, reporting, disclosure and future success, none of which can easily be templated.

Associated with this, some believe that ESG and sustainability discussions at the board level are taking place at a relatively high level (30,000 feet level) and have concerns that there may be a disconnect between board discussions and what is happening at the ground level.  It has been pointed out that best practice board members are visiting facilities or possibly even have independent conversations with on-the-ground members of their network to ensure they understand what sustainability means at the working level, and to feel the organisation’s temperature.

Luckily it becomes also increasingly common for ESG dashboards to be used within organisations. Such tools, assuming that appropriate and relevant metrics are being used, allow for a quick change of altitude and effective deep dives if and where required.

The evolving role of the board and the chair

In an environment where regulators, the investment community, and stakeholders are focused on the purpose and strategy of companies and board performance, directors need to become increasingly curious and ensure that they have the right lenses on the future of their organisations.

In a hybrid corporate governance environment, the role of the chair is essential to invigorate open discussions, create safe spaces and ensure that the board has sufficient time to reflect.  The chair also needs to ensure that he/she doesn’t “broadcast” and that boards operating virtually do not compromise on the quality of debate, become too tunnel-visioned and functional, and have short-sighted discussions.

Board meetings are getting shorter; however, there may need to be more discussions on important topics such as innovation, some of which may need to be away from the board room.

Finally, with an increase in the number of start-up boards, boards and their directors are focusing on best practices in pulling together start-up boards, finding the right directors, and professionalising them.

Board composition – Bringing new perspectives into the board room

With new pressures on companies and their directors requiring them to bring new perspectives into the board room, most boards have been looking at how they can find the right talent.  Expectations on nominating committees to increase the value that they add to their organisations are rising.

In line with increasing recognition that not all expertise needs to be on the board, many companies have established advisory boards to advise management, which allows for talent gaps to be filled more quickly and supplement internal resources.  Some are including people with innovation, digital and ESG expertise on these boards.

Boards are also looking for directors to bring more contrarian views.  Examples include having younger voices in the boardroom, obtaining employee points of view (to understand well-being and resilience) and inviting customers to speak to boards.  The composition of the board needs should take into consideration the need for generational and other diverse views, as well as experience.  Others are looking for expertise beyond their borders. For example, some of the leading practices concerning digital are from Asia (specifically China) and Africa.

Improving board effectiveness

In line with the need for boards to be more agile, more established boards are doing evaluations and gap analyses, which are essential given the speed of change and the need to quickly assess whether boards need new talent.  These are formal and informal, take place more frequently, and look at what to start, stop and continue, moving beyond a checklist approach.

Over the past 18 months, most boards have become more digitally savvy. However, some highlighted that having one or two board members with digital experience doesn’t translate to the whole board collaborating well using technology.  It is taking time for most boards to learn how to best use technology in the boardroom, with some needing to accelerate their progress in this area.  One tool that some boards are exploring is the use of electronic signatures.

 

IDN’s next webinar on Successful Family Business Boards – Best Practice Discussions will be held on Monday, 17 May 2021.

 

INSEAD Directors Network (“IDN”) – An INSEAD Global Club of International Board Directors

Our Mission is to foster excellent Corporate Governance through networking, communication and self-improvement. IDN has 1,500 members from 80 countries, all Alumni from different INSEAD graduations as MBA, EMBA, GEMBA, and IDP-C. We meet in live IDN webinars and meet-ups arranged by our IDN Ambassadors based in 25 countries. Our IDN website holds valuable corporate governance knowledge in our IDN blog, and we share insights also to our LinkedIn and Twitter followers. We highlight our member through quarterly sharing of their new board appointments, and once a year we give out IDN Awards to prominent board accomplishments. We provide a peer-to-peer mentoring and board vacancy service and we come together two times per year at the INSEAD Directors Forum arranged by ICGC. We also engage with ICGC on joint research.

 

INSEAD Corporate Governance Centre (“ICGC”)

Established in 2010, the INSEAD Corporate Governance Centre (ICGC) has been actively engaged in making a distinctive contribution to the knowledge and practice of corporate governance. The ICGC harnesses faculty expertise across multiple disciplines to teach and research on the challenges of boards of directors in an international context and to foster a global dialogue on governance issues with the ultimate goal to develop boards for high-performance governance. Visit ICGC website: https://www.insead.edu/centres/corporate-governance

 

Confronting Governance Conundrums in an Era of Change

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Confronting Governance Conundrums in an Era of Change

How have the role and focus areas of boards been evolving as the corporate landscape has changed? 

By Karen Loon, IDN Board Member and Non-Executive Director

On 16 October 2020, a diverse panel led by Helen Pitcher OBE, IDN President discussed “Confronting Governance Conundrums in an Era of Change” in a session held as part of the INSEAD Directors Forum.  Panellists included:

  • François Bouvard, Vice Chair of Institut Français des Administrateurs & NED
  • Karina Litvack, Non-Executive Board Director, ENI S.p.A., Executive Board Director, Chapter Zero, Member of Board of Governors, CFA Institute, Non-Executive Director, BSR
  • Elena Pisonero, Chairperson of Taldig and former President of Hispasat, former Spain’s Ambassador to the OECD; former Secretary of State of Trade, Tourism and SMEs in Spain

The panellists discussed a wide range of topics including:

  • What COVID has meant for boards
  • Digitisation and data
  • Changes in corporate governance in the future
  • How will the role of directors change in the future?

 What COVID has meant for boards

Over the past nine months, COVID has significantly changed our world.  Whilst some companies anticipated some of the changes, others were less prepared for them.  For many companies, it has created an acid test for workforces, management and boards who face big challenges ahead.  As management may not have enough time to focus on strategy and “reset”, there may need to be a big shift in the roles of management and boards.

The acceleration of change has also brought to the forefront companies which were less or more prepared due to their digital structures.  Those companies which identified the transition of change in society prior to COVID have been transitioning this fairly well compared to sectors which are struggling because they are still doing business in more traditional ways.  COVID has emphasised the need for boards and management to work more closely together to identify the future needs of stakeholders at large, not just shareholders.

The pandemic is an example of a systemic risk – something that none of us can solve because it needs to be solved at a systemic level, but all of us suffer the consequences of if it’s poorly managed, therefore, what are we going to do?  In considering the systemic impact of the pandemic, a broader question some companies have been considering is do boards understand systemic risk, do they talk about it, do they discuss it?  What can they do as companies to influence systemic preparedness, and is there a role for business in influencing the policy environment and the big social infrastructure investments that are made to protect both the society and business environment?

Some panellists feel that it is time for companies, led by their boards to introduce more ‘out of the box’ thinking and change the role of governance.  Boards and companies should not only be considering what they can control but think more broadly about all the things that are going on.

Digitisation and Data

Many companies have a misconception or misunderstanding of what digital is – it is what we can do with connectivity but doing things in a different way. Digital technology is the tool which allows companies to better reach their purpose.

Increasing the extent of use of digital should be viewed as a cultural change; it is not a matter of introducing new processes or new titles for the C-Suite.  It is how companies combine digital and physical means.  Companies need to have a mindset change and consider their whole value chain and how they can better manage and identify best opportunities to change their business models in order to thrive.  Companies cannot succeed at affecting this transformation unless they put people at the centre of it.

One suggestion was that in order to be better prepared for more digitalisation, companies should introduce ‘D’ in ESG because we should introduce as much data as we can to improve our decision-making processes.  Data is a crucial part of a digital mindset to improve decision making and identify and anticipate future risks.

Changes in corporate governance in the future

Boards are now looking at how they govern their companies more holistically, shifting discussion towards stakeholder governance rather than just shareholder capitalism.  Many companies are starting to address human issues (i.e. talent development) more effectively and are connecting the dots in terms of digital to human elements, recognising that at the end of the day that key stakeholders are customers and employees.  Digital has been providing companies ways to be more efficient.

Whilst sustainability is more on the mind of everyone, many companies are struggling with shorter term issues, so have pushed some longer-term questions aside for the moment.  This will continue if the pandemic drags on.  However, boards and management do need to revisit the way they work together on strategy in the longer term.  Whilst in the short term, companies may have lost focus on sustainability, in the longer term the view is there needs to be much more focus on this area as companies have a societal responsibility and everything they do should link back to the organisational purpose.

It is likely that the amount of time which boards spend focusing on more “out of the box” discussions in the longer term will expand, given that CEOs and management teams are required to spend much more time on shorter term issues.

How will the role of directors change in the future?

As the whole landscape changes, directors will also need to change.  This should start with the board of directors.  To be on top of all the issues, not only do they need to be open, read a lot and network well, they need to continue to improve their soft skills to be able to support their CEOs and teams in a supportive and yet challenging way.  Boards need to increasingly take a holistic view of their stakeholders, as well as how they support the development of talent, and how they use digital and data.  There is also likely to be much more interaction between boards and management, often digitally.

Is there an opportunity? Our life after Covid-19

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By Konstantinos Yazitzoglou, IDP-C and IDN Greece Ambassador 

“In the midst of every crisis, lies great opportunity” –
Albert Einstein

We are undoubtedly experiencing one of the greatest crises in modern history. A crisis unlike any other and therefore with unknown consequences. “Experts” try to assess its effects on our lives and predict the new reality to come. If, like me, you are sceptical about futurism, the current situation certainly helps reinforce this view.

Most of us agree that, at some point, there will be “a day after”. Whether it will be a day with a vaccine or efficient medications, with a lot of social distancing or none, with fear or not, it is difficult to say.  We understand there will be a recession, but we hope that it will be controlled and reversible. We recognize that some companies, or even whole sectors will cease to exist, but we hope that ours will survive. Some of us even dare to foresee major changes in their personal and business life, but consider them manageable.

Economists often refer to the expression “ostrich effect”.  In simple terms it means that when faced with an unmanageable crisis, people tend to close their eyes in an attempt to ignore the problem they’re faced with, hoping that at some point, when they open them again, the problems will be gone, and everything will go back to being the same. As the philosopher Ayn RAND characteristically states, “You can ignore reality. But you cannot ignore the consequences of ignoring reality.”

“You can ignore reality. But you cannot ignore the consequences of ignoring reality” – Ayn Rand

It is true that during a massive storm common sense dictates we should do our best to minimize our exposure to any potential damage. At this point in the COVID crisis, our organizations’ ability to react is limited to trying to  “preserve the status quo”, which is surviving the storm with the least possible losses. Size adjustments, changes in production models, access to markets or products that until yesterday were not a priority are just some of the methods used. While there are various good practices and lessons we can use from past crises, there is clearly no “recipe for success”.

The upcoming economic recession is a given and all we are talking about is its magnitude – how much and for how long. Central Banks and Governments are already employing various financial measures to control the situation, but the degree of their success depends entirely on the duration and intensity of the pandemic.

The crucial question that business leaders need to answer now, is what the post-crisis era will look like. Even if we manage to overcome the health crisis, everyone agrees that some things will never be the same again. For instance, it is certain that for a period of time public spending in health will increase significantly. This, in turn, will deprive other sectors from funding. There are already discussions about “deglobalisation” so that, should we be faced with another pandemic in the future, we can have a “local” supply of markets. Such initiatives may change the rules of the game in the utilisation of raw materials and in logistics.

Business travel needs will be reassessed, with potential implications for fuel consumption, transportation, and infrastructure investment. The ability to do remotely things that until yesterday required our physical presence in a certain location, will reduce the need for such locations (offices, shops, etc.). On the other hand, working from home will require investment in both real estate and equipment. Even Wi-Fi and cellular networks will have to be significantly strengthened in residential areas, to accommodate the increase in demand generated by the new professional grade use made.

The term disruption was coined twenty years ago, to describe a state of rapid and unexpected change. The main characteristic of disruption is that no extrapolation of data from the past can give valid predictions of the future. COVID is a disruption of the disruption. Long before the current crisis, the academic community conducted dozens of case studies of large corporations (for example KODAK), which stubbornly refused to see the speed and intensity of forthcoming changes, leading to their disappearance. The current pandemic is simply accelerating this process, on the one hand because developments occur even faster and on the other hand because many of us, in complete denial of reality, will continue to “dream” of returning to a pre-pandemic state of things.

Having said that, we must not ignore that the same changes which led “dinosaurs” to their deaths have fuelled a series of greater or lesser successes for several agile organisations. The speed of adaptation to the new reality is nowadays the strongest competitive advantage for an organization. When the instinct of survival meets creativity, the result is always positive. Humanity will continue to exist even after COVID, the world GDP always finds a way to return to a growth trajectory after a crisis, developments in technology will be even faster and perhaps more focused.

“Do not think what you want from the future. Ask yourself what the future needs from you.” – Jeffrey Rogers

Clearly, for many of us, the loss of the “status quo” and the collapse of the “comfort zone” that we had painstakingly built on, are facts that we find difficult to manage. Wishing that it will all go away may be comforting in the short term, but it will not get us very far. Instead of being ostriches, let us follow the advice of Jeffrey ROGERS (Singularity University): “Do not think what you want from the future. Ask yourself what the future needs from you. ”