Traditionally, boards oversee four main areas: human resources, finances, governance and strategy. Each of these areas has its own specific issues, but board operations overarch them all. To be valuable and drive organizational change, boards must focus on creating long-term value, building an agile company culture, and attracting and retaining talent. This is particularly important in the current business environment, which is emerging from the lockdowns and restrictions of the pandemic and slowly edging toward a new normal.
Boards are a good idea for all companies, not just public companies, because they can provide an objective view of any situation that arises. For example, a company in New Orleans or Houston might benefit from having an expert in crisis management or disaster planning on the board because they have had so many disruptive hurricanes over the past few years. Similarly, commercial real estate companies in big cities might want to include a futurist on their board.
Whatever the makeup of the board, the company should strive for board members who:
- Will not rubber stamp company leaders' decisions without asking relevant questions and asking for supporting information.
- Can think independently, so decisions can consider different points of view.
- Have a trust-based working relationship with company leaders.
- Can drive long-term value by changing a shareholder-centric culture to one that authentically embraces corporate social responsibility, inclusion, diversity and employee well-being.
Each of these items is important, but the last point is the one likely to be most critical to the company's long-term goals. There are several reasons why.
- 94% of Gen Z, the cohort born between 1997 and 2015, now think companies should address pressing social and environmental issues.
- 76% of consumers say they wouldn't do business with a company that holds views or supports issues that are in conflict with their own.
- 55% of consumers are willing to pay extra for products and services that contribute to positive change.
A board that embraces this view of a company's role in the world is essential to the company's future success, especially as we emerge from a difficult year that challenged companies and individuals in ways they never expected. The pandemic made clear that society relies on companies to help it meet basic needs such as food and shelter. Forward-thinking companies have been baking this into their culture for years. Today, most companies realize that they do not exist solely to maximize returns for their shareholders. The statistics cited above reinforce that.
For boards, the result is that they need to make different, more deliberative types of decisions, and they need to be able to explain the rationale behind them.
Deciding whether to pay dividends during the pandemic is a good example of the kinds of decisions today's boards have to make. Rather than automatically doing what they did in the past, members of corporate boards all across the country were forced to consider how paying a dividend would be perceived by a public that was enduring layoffs and furloughs. Whatever their ultimate decision, the board members need to be able to explain their rationale.
According to the 2020 PwC Annual Corporate Directors Survey, the result is that 93% of board directors say they are engaged, and 88% said they had the ability to challenge or question their company's management.
Investors and managers alike will want to keep an eye on the evolution of boards in the coming weeks and months.
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