Board governance has changed dramatically in the past few years. We discuss how your board can face modern challenges head-on and use them to advance your board and organization as a whole.
If there is a figurative beating heart of your company or nonprofit, there’s no question that it’s your board. As the embodiment of your operating system, the board has the power to guide the overall health and success of an organization at large.
But what factors ultimately help or hinder a board’s ability to succeed? Recently we had the opportunity to seek answers by speaking with some of the brightest minds in board education and leadership.
Our 2022 ATLAS Leadership Series delved deep into the top-of-mind topics for today’s board management and governance leaders — from enhancing diversity to cybersecurity and everything in between.
Several major themes surfaced in these conversations. To help boards prepare for the year ahead, we’ll go in-depth on the 3 topics below, followed by outlining concrete steps you can take to make meaningful progress in 2023 and beyond.
- Diversity remains a critical goal
- Effective leadership and governance are more important than ever
- Technology makes boards more collaborative, engaged, and secure
Trend No. 1: Diversity Remains a Critical Goal
If there’s one topic that has dominated the board community in recent years, it’s diversity. Awareness and conversations about the importance of diversity have been kindling for years, but a recent combination of social events and public policy has turned those embers into a blaze.
If you think diversity means setting percentage goals and seeking board members of specific races, think again.
“Now, with so much coming out, we are trying to change,” says OnBoard Co-Founder and CEO Paroon Chadha. “The topics and the opportunities are actually requiring more discussion and more varied voices.”
Diversity, equity, and inclusion (DEI) efforts span more than race and revenue targets. If you don’t want to come off as tone-deaf or lose out on incredible candidates, you need to take serious steps to include diverse voices, starting now.
The Policy Behind Diversity Initiatives
While forward-thinking business leaders have long embraced the intrinsic value of diverse leadership, recent shifts have also helped bolster diversity efforts at a policy level.
In 2002, the Enron and WorldCom scandals ushered in major changes to corporate governance that set the stage for where we are today. Then in 2020, the murder of George Floyd shined a spotlight on the need to work toward a more fair and equitable society.
“I think everyone was shocked by the horrible events of May 2020 with George Floyd. Suddenly, boards started to look at themselves and pick up the pace on diversity and inclusion on committees, and also adding people of color on the board,” says Peter C. Browning, Founder and Managing Director of Peter Browning Partners and author of The Director’s Manual: A Framework for Board Governance.
Boards that used to relegate culture to an administrative backburner quickly received the news flash that diversity connects to larger strategy and risk management efforts.
In 2021, the SEC approved the Nasdaq’s Board Diversity Rule, and that same year, top asset manager BlackRock announced new diversity targets for the boards of U.S. companies. Meanwhile, in California, a new regulation that set gender and racial diversity thresholds for boards quickly caused the number of male-only boards to dip from 33% to 2%. While the California Supreme Court struck down the law, the positive impacts remain.
Diversity Still Has Room to Grow
Policy and publicity help spur diversity efforts, but where do companies stand today? Data is readily available for public boards, which must comply with routine annual reporting.
Lissa Broome, Head of the Director Diversity Initiative at UNC School of Law, shared the following statistics based on the 2022 spring proxy season:
- 22% of board members at S&P 500 companies are people of color
- 32% of board members at S&P 500 companies are women
The picture is bright but still has room for improvement.
“Forty-two percent of the population are people of color. Women are 51% of the population. So we still have a long ways to go,” Lissa says.
According to OnBoard’s 2022 Board Effectiveness Survey, company leaders agree that there is room to grow, with only 62% of organizations rating themselves as effective on board diversity.
Common Diversity Roadblocks
Several primary factors prevent today’s boards from quickly and strategically adding diverse talent.
Lack of Turnover
If boards rely on retirement alone to refresh their seats, they may need to wait a long time. Over half of all board members at S&P 500 companies are currently aged 60-70, according to Lissa. With the mandatory retirement age set at 75 and term limits uncommon for public boards, many current members will likely continue to serve for the next decade.
Lack of Evaluation
While the performance of company employees is reviewed and evaluated annually, board members are usually not. This is a missed opportunity for diversity goals, as board members who no longer fulfill a strategic role cannot be easily counseled or replaced.
Lack of Innovative Recruitment
To fill open board seats, many boards turn to agencies or ask their governance and nominating committee if they know of any good-fit candidates. This can quickly turn into a scenario of over-fishing from the same proverbial pond, as our personal networks tend to consist of people like ourselves.
“Typically, boards are looking for people who have served on boards,” says Marilyn Nagel, co-founder and Chief Advocacy Officer of RISEQUITY. “And when the predominant group that has served on boards tends to be white males, then the population that you are drawing from is not the population that you’re looking for to add diversity.”
Steps to Overcome Diversity Barriers
Ready to transform your diversity and inclusion practices for the better in 2023? Here are 8 concrete ways to get started.
1. Evaluate Where You Stand
Take steps to evaluate your organization against current board benchmarks in your industry to guide the scope and pace of change. Then assess the strategic gaps in your board. Are you missing specific skills? Do you have a succession plan for board members who may step down?
The answers can form the basis for a job description that gets you one step closer to seeking candidates who meet your diversity and business goals. Board software can help your efforts to map out collective skill sets and identify gaps.
2. Leverage Multiple Sources of Diversity
Recognize that diversity goes beyond race and gender. Seeking a diverse array of qualified candidates means looking at all qualified candidates, spanning diversity in gender, age, race/ethnicity, professional experience, board tenure, and more.
3. Set Term Limits
Just because term limits are uncommon or long doesn’t mean you can’t implement them or modify them to combat the systemic lack of board turnover. Consider taking a page of the nonprofit book and setting shorter terms to refresh your board talent regularly. To supercharge fairness efforts, rotate members in and out of high-authority roles to give diverse faces an increased chance to lead.
4. Conduct Annual Evaluations
In addition to evaluating individual board members on an annual basis, conduct regular board checkups and self-reporting. Consider creating a Human Capital Management committee to facilitate organization-wide diversity and SEC reporting requirements — then turn the attention of that committee on the board itself. Boards that take steps to self-reflect and self-govern will swiftly generate more inclusion.
5. Add Net-New Board Seats
Consider increasing the overall size of your board. You can expand the entire board footprint if your business needs warrant additions — or increase the size temporarily as you pass the reins to new talent. This will allow you to onboard a new member while the existing director phases out. Both options help you get fresh, diverse faces into your boardroom sooner rather than later.
6. Fill Openings Intentionally
Instead of turning to the same agencies and word-of-mouth recommendations when a board seat opens, explore new recruitment platforms. Lissa and Marilyn facilitate registries where diverse directors and potential directors can upload resumes and showcase their industry expertise. Registry organizers regularly conduct searches at the request of both for-profit and nonprofit boards to provide candidates lists that meet their specifications.
7. ‘Bake in’ Diversity Via Succession Planning
Review your governance principles annually and use a nominating and governance committee to fill open stops. Every three to five years, complete a “clean sheet” assessment of diversity and skills and strive for a mix of board tenures. Some industries have seen success with advisory boards, traditionally created to help break into new markets.
8. Avoid the Business Case for Diversity
Diversity is good for business, but it’s best not to lean on the business rationale when touting your search for diverse board members. According to Harvard Business Review, the best course of action is simply to state your commitment to diversity without any explanation. Alluding to the business case for diversity can backfire, as it implies that diverse candidates are a means to an end.
Trend No. 2: Effective Governance and Leadership Are More Important Than Ever
Whether you want to enhance diversity or better achieve your board’s mission, implementing new methods to improve your organization isn’t possible without effective leadership and governance. Today’s boards operate in a more dynamic setting than ever before. Here, we offer a simple yet non-traditional view of governance and explain why embracing change and adaptability is vital.
Recognize that Good Governance Equals Good Decision-Making
Attempting to define “governance” can leave many seasoned professionals scratching their heads. When board effectiveness researcher Matt Fullbrook explicitly asked for definitions of governance during his research, he often received half-baked answers replete with jargon.
“Many would come back with something along the lines of ‘corporate governance is governing corporations,’ which of course isn’t helpful,” Matt says. “But it illustrates that we’re using this word, governance, without actually having a confident idea of what we mean.”
That’s why Matt, founder of Fullbrook Board Effectiveness and Ground-Up Governance, came up with his own laser-focused definition of governance:
Corporate governance is the way that decisions get made in an incorporated entity. Good governance means actively creating conditions that are likely to result in effective decisions.
The above definition is free of words like boards, executives, policies, processes, bylaws, compliance, disclosure, and executive compensation — and that’s by design.
While elements like your board, your commitment to diversity, and other factors can help you reach effective decisions, Matt says you shouldn’t think of them as governance checkboxes that you need to tick off. Instead, you should purely focus on enabling good decision-making.
Common Decision-Making Barriers
If governance equals facilitating good decisions, what factors get in the way? While Matt’s definition of good governance is simple, the act of making good decisions is not for many reasons. Below are four of the most common barriers:
- Confirmation bias: We tend to embrace information that supports what we already believe and reject information that goes against what we already believe.
- Narrow framing: We sometimes enter the boardroom with a predetermined binary mindset on an item that is up for decision or vote.
- Short-term emotion: Embarrassment can prevent us from speaking up and expressing ourselves in the boardroom.
- Overconfidence: We’re inclined to be overconfident in our own expertise or the expertise of others.
Many of the above factors are the product of subconscious or deeply rooted behaviors. But that doesn’t mean fostering a good decision-making environment in the boardroom is impossible. Conditions that help good decision-making include opening the door to multiple opinions and options. Subtle shifts create the conditions that help everybody thrive.
Use Effective Leadership to Facilitate Necessary Change
Shaking things up can sound easy on paper but prove difficult in theory. That’s precisely why you need strong leaders who are prepared to persevere for the greater good.
Col. David Fivecoat recognized this firsthand in his role as a U.S. Army Ranger School Commander, overseeing gender integration of the elite Ranger School in 2015. Today, David believes that courage and grit are the top hallmarks of any effective leader, whether you’re on the battlefield or in the boardroom.
One of the Army’s notoriously toughest programs, the Ranger School accepts only the top 5-10% of military personnel. Until 2015, all participants were men — but by the end of that year, three women graduated from Ranger School. Since then, over 100 have earned that honor.
Opening the Ranger School to women proved to be a high-profile endeavor. Even members of Congress were sitting up and paying attention to this seismic shift in inclusion. David felt the first key to success was maintaining full transparency each step of the way.
“It wasn’t just a ‘black box’ that women went to ranger school and either did or didn’t finish,” David says.
Clear transparency took the form of frequently speaking with reporters and providing both Army members and the American public with the updates they craved.
Transparency alone did not lead to smooth sailing. Like David’s experience in the Army, changing the status quo will inevitably lead to resistance and naysayers. The first step is to identify the types of reactions you will encounter.
Reactions don’t always take the form of “for” and “against.” David broke down the most common responses into four nuanced categories:
- Active resisters: Those actively trying to prevent the change
- Passive resisters: Those against the change who are waiting to see what happens
- Passive supporters: Those in favor of the change who are waiting to see what happens
- Active supporters: Those actively taking action to support the change
Your goal should be to move active and passive resisters to the active supporters group. One way to sway your audience is to hold meetings at the beginning, middle, and end of the project or initiative. For David, this was an opportunity to put out his message and hear the challenges and frustrations on a grassroots level.
Translating this to the board environment, it’s clear that jumping straight into a significant change can backfire. Instead, prime the change for positive acceptance by giving ample opportunity to hear and address concerns.
According to David, the secret to facing and overcoming challenges is grit — a fact that he spent an entire book covering, aptly titled, Grow Your Grit.
Having the grit to persevere is critical when leading any change, especially when facing active resistance on multiple fronts. Sticking to your guns and communicating clearly and effectively will typically lead even some naysayers to support your cause.
Adaptable Boards are Successful Boards
If grit and determination are one lever for successful leadership, the counterweight is adaptability. According to Donna Hamlin, Ph.D., Founder & CEO of BoardWise, staying current and contextual is essential as the business landscape can change overnight.
“We have to understand the forces in play that are going to impact us and understand a greater context for the work we’re doing,” Donna says.
Boards Must Always Be Trend-Spotting
Keeping a pulse on big-picture forces requires more than memorizing facts. It means deeply understanding the current forces shaping the business landscape and envisioning how they may impact your organization.
Several major headwinds are shaping the business landscape today, including:
- Meeting the expectations of sophisticated shareholders and stakeholders (including the planet)
- Slower speed to market
- Stricter requirements to access institutional investor funds
- Fuller formal transparency
- Tighter regulations and reinforcement
- Data management related to ESG
- Stretching of governance accountability
“We have to think about things in a much greater context than we have in the past,” Donna says.
If it sounds like a lot to grasp, that’s probably because it is. But that shouldn’t stop board leadership from looking forward and preparing for agile responses.
Steps to Achieve Good Board Governance and Leadership
Good governance and savvy leadership involve actively creating conditions likely to result in effective decisions. But what exactly are those conditions? Matt Fullbrook shared his top 5.
1. Manage Confirmation Bias
People tend to favor and recall information that supports their beliefs or theories. Board members aren’t immune from this bias. That’s why boards must actively root out and manage confirmation bias to drive effective decisions.
2. Generate Multiple Options
Instead of framing decisions as “yes or no” scenarios, it’s important to hear from all participants and consider all options. Avoid binary choices — in other words, choice A or choice B — whenever possible.
3. Limit Emotional Influence
Since emotions can unwittingly impact decision-making, take steps to slow down the process of major decisions so each member can take time to process their thoughts and find space to voice their opinions. The goal is to avoid members simply going with the flow because they can’t identify a comfortable window to speak up.
4. Manage the Experts in the Room
It seems counterintuitive, but just because you have experts in the room doesn’t mean their decisions and predictions will be correct. The overconfidence of one expert can eliminate or bulldoze the strategic thinking process. The answer? When you have experts in the room, try to encourage them to ask questions instead of making predictions and statements.
5. Emphasize Inclusion
There is no such thing as boardroom conditions that will optimize the inclusion of every person simultaneously. That’s why boards must strive to create conditions that allow everyone to be active participants by thinking about who is in the room, what their styles are, and how we can best hear them.
With both governance and leadership, it’s important to know when to disrupt the status quo with confidence so you can improve your organization. From pioneering new waters to fostering the best environment for decision-making, the key is to keep an open mind and be willing to experiment.
Even if your current boardroom routine is working “fine,” try something 1% different at your next meeting and see what happens.
Trend No. 3: Technology Makes Boards More Collaborative, Engaged, and Secure
While boards have the option to test change 1% at a time, embracing technology has the power to supercharge board effectiveness by miles. Having the right board technology in place can support all the trends identified above, bringing important elements of board governance, diversity, compliance, and management front and center.
The role of board software is a growing force within modern organizations — and its potential impacts on collaboration, engagement, and security cannot be underestimated.
Board Meetings in a Changing Landscape
The simple fact is that board tech provides measurable advantages. According to OnBoard CEO Paroon Chadha and CMO Rob Kunzler, data shows that boards that adapt and employ technology to optimize boardroom processes have a native advantage over boards that don’t.
It’s easy to see why. Board functions, requirements, and technology have changed more in the last three years than during any 18-year period in history, thanks to the pandemic, cybersecurity threats, and ongoing digital transformation.
Technological Transformation Is Accelerating
The best way to ride the wave of changing technology is to lean into it.
“Technology and intelligence can be an enabler,” Kunzler says. “It’s about leaning into intelligence and using technology to get to a better place faster.”
Digitizing all aspects of board meetings can help boards navigate the ever-changing landscape. That’s because digital board management solutions offer far more than the ability to meet remotely.
Board tech is not synonymous with Zoom — deployed wisely, it can increase effectiveness by eliminating administrative bloat, reduce your cybersecurity attack surface by consolidating into one streamlined platform, and more.
How Board Software Supercharges Your Digital Advantage
If you’re looking for concrete examples of how you can apply board management software tools to increase board diversity, governance, and effectiveness, look no further. Below is a snapshot of several features that can do just that.
- Skills tracking: Put board tech to work by unlocking insights that guide recruitment and succession planning efforts. Successful boards leverage the right mix of skills to allow for diversity of thought and innovative perspectives. OnBoard Skills Tracking allows for clearer visibility into current board composition and gaps in expertise — then take action or build a recruiting plan that fits your organization’s strategic direction.
- Roles and terms management: To avoid a lack of turnover that stifles diversity, make a clear plan for how long specific duties and terms will last. The OnBoard Roles and Terms Management feature offers a formalized way to address the big picture of board composition and recruiting. Set up the term limit and role for each board member, then enjoy seeing your board’s experience, roles, and terms in a central place that promotes compliance and helps shape your team’s future.
- Board assessments: Assessments are a critical tool to ensure successful governance and successful board members alike. Templated assessments allow your board to partake in everything from an annual board assessment to a committee assessment to a CEO evaluation. Opportunities for reflection provide a powerful way to continuously improve board performance with actionable results.
From succession planning to filling skill gaps, board tech can provide the tools that make self-improvement a continuous and year-round activity.
Don’t Ignore Cybersecurity
It’s clear how board tech has the power to improve board diversity and governance. But sometimes, we overlook the need to implement tools to enhance an organization’s cyber protection.
With the increased use of technology comes a greater threat of cyberattacks. Yet the answer isn’t to move everything back to pen and paper. It’s to use board technology resources safely and effectively.
Cybersecurity Costs Are On the Rise
The growing sophistication of cyberattacks has led to an outsize impact on organizations’ and consumers’ wallets alike.
According to IBM’s annual Cost of a Data Breach Report, the average breach in the U.S. now costs over $9M and can take longer than nine months to identify.
ATLAS panelists Nick Merker and Mason Clark, Intellectual Property & Technology Practice lawyers at Baker & McKenzie, noted the consequences of a cyberattack aren’t only monetary. A breach can also negatively impact an organization’s reputation and its board.
Boards Should Play a Role in Cybersecurity
Due to increasing threats, boards must put technology and security front and center. They can no longer relegate oversight of these areas to the IT department alone. Instead, boards should actively oversee technology initiatives and prepare for cybersecurity as they would prepare for any other crisis.
No matter what industry they operate in, all boards should aim to follow technology best practices. This starts with asking the right questions and determining meaningful metrics and governance to put in place to track progress.
Taking action could look like consulting with external experts or creating an internal oversight committee consisting of tech-savvy members.
Steps to Better Board Management Using Technology
The pace of technology waits for no one. So we’re giving you three key strategies you can use to support smart technology decisions right now. Boards can easily remember these tips by memorizing the three “C”s: cybersecurity, coaching, and construction.
1. Embed Cybersecurity into Board Digital Transformation
Dealing with sensitive information is part and parcel of running a board. That’s why a data breach can result in costly litigation and devastate an organization’s reputation. Proper protection from cyberattacks takes effort on both the technology side and the culture side, but keeping secure doesn’t have to be complex and cumbersome. Familiarize yourself with common cyber dangers, and then take steps to set appropriate permissions, secure meeting minutes, and keep all board discussions within protected channels.
2. Invest Time in Benchmarking to Support Coaching and Change Management
Use technology to support diversity and governance goals by investing in a clear system of benchmarking, coaching, and change management. This is where tech tools like meeting ratings, skills, and agenda management come in. Don’t accept the status quo at face value — use continuous two-way feedback to ensure that board members are serving the organization and that the organization is best utilizing the board.
3. Correct (Technology) by Construction
Embracing technology doesn’t have to be intimidating; the same goes for board tech. Today’s solutions are easy, intuitive, and results-oriented, so choose the software that meets your organization’s specific needs. Even if you are not in a high-tech industry, you can still reap incredible benefits by centralizing board data into one portal and putting board software features to work.
Head into 2023 with a Purpose — and a Plan
Success in diversity, governance, and technology doesn’t happen by accident. It’s the result of setting intentional goals and putting in place the processes and tools that help you get there. The three trends we’ve covered also do not exist in isolation. Rather, each feeds into and influences the next.
We’re entering an era where it’s easier than ever to include diverse board members, and there are concrete ways to attract diverse talent and measure success. Good governance and leadership play a role in bringing on and fostering such talent, while the new talent itself increases the value of the leadership in play. Meanwhile, technology supports perhaps every initiative across the board, with features that have the power to maximize board inclusion, clarity, and effectiveness at every turn.
As technology pioneer and IBM emeritus Nick Donofrio says, “We as leaders have to become masters of change. You have to embrace change, you have to harness it, and you have to, in some cases, cause it.”
To hear all our expert interviews, explore the ATLAS Leadership Series.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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