As we head into Q3 2023, there is a strong argument to suggest anyone acting as a board chair, or aspiring to fill such a position, needs to be better equipped than ever, in terms of their leadership and facilitation skills. The business world is evolving at a phenomenal pace, redefining many of the aspects of the chair’s role and, at the same time, broadening its scope.
However, Chairs, CEOs and non-executive directors all need to be equally mindful of the rate of transformation, not just in their business and economic worlds but also within society.
Relying on old ways of doing things, or on former assumptions, may not now serve companies, or their stakeholders well, in a world in which five-year business plans are often not worth the time and effort dedicated to them, given the rapidly changing world in which we live and the widescale digital and societal transformation we are experiencing.
Here at Space2BE, we believe that leadership and board training should be a key priority for any organisation that wants to get things right. Having the capacity to become more focused, whilst also being more ‘agile’ is imperative. Training for all leaders and board members should be ongoing to ensure they are fit for purpose in their ever changing contexts.
Setting the context: in what world are Boards operating in 2023?
On April 26, 2023, McKinsey published its report, ‘The State of Organizations 2023: Ten shifts transforming organizations.’ The report revealed that half of organisations are said to be currently unprepared to react to future shocks.
It also highlighted a worrying inability of organisations to match their top talent to their highest value roles, with 20-30% of critical roles not filled by the most appropriate people. This is despite an 800% productivity advantage being attainable when the highest performers are deployed within critical roles.
Other worrying trends are noted. 40% of respondents state that complex organisational structures are preventing a top organisational goal of ‘efficiency’ being delivered. Furthermore, only 25% say their leaders are engaged, passionate and inspiring.
Only 47% of organisations are said to have the infrastructure to realize transformative diversity, equity and inclusion (DEI) strategies. Added to this, a real need for organisations to refocus their mental health and wellbeing actions was noted.
Finally, many organisations are felt to be announcing digital and tech-led strategies, without necessarily having the capability of delivering them.
The backdrop to all of this was also explored. Organisations had doubled their usage of AI in the period between 2018 and 2022. Meanwhile, globally, 90% of organisations now operate hybrid working arrangements. Both of these situations bring their own challenges.
Beyond this McKinsey report, it is clear that sustainability is an issue about which an increasing number of stakeholders are concerned and that boards now have to put their ESG (Environmental, Social and Governance) strategies centre-stage within their daily thinking.
Stakeholder concern is, in fact, another driver behind the need for chairs to add new dimensions to their role, in an effort to ensure that the organisation is serving all stakeholders acknowledging their concerns and passions and assessing how these align with corporate strategy.
Add to this, challenges still posed by Brexit, the pressures of the economic crisis and continual issues within the global supply chain and boards have complex situations on their agendas, month after month.
The need for board training
Fewer than 1% of board members worldwide have university credit-rated qualifications in corporate governance, according to the Corporate Governance Institute. Very few chairs or serving board directors have been officially trained in the important fundamentals of successful boards, despite the Institute believing that corporate governance is not something at which most people are naturally adept.
Given the huge challenges faced by boards in 2023, it is all too easy for them to get side-tracked by dealing with operational matters, taking their focus away from key considerations such as corporate culture and strategy.
There is also a need for many boards to fill their skills gaps, with a greater range of skills required on boards in 2023 than say 20 years ago. Key areas in which skills are now required are ESG, digital transformation and cyber security, which requires the recruitment of directors with these skills and a robust director recruitment programme. It also necessitates the augmentation of the existing team’s knowledge, so as to assist the decision-making process and the delivery of corporate strategy.
Board members now also require a mix of hard and soft skills – something that may not have been the case a few decades ago. Having emotional intelligence and listening skills can be hugely important, with these qualities also ranking alongside others now required, including curiosity and imagination.
There is equally a real need for more diversity on many boards, to leverage the proven benefits of diversity and inclusion and to better represent the viewpoint of many stakeholders. However, having a diverse board is only of benefit if diverse views can be expressed and heard. Facilitating this is another skill that chairs need to demonstrate, as the dynamics within boards increasingly shift.
The governance framework for chairs and CEOs
The 2018 UK Corporate Governance Code sets out general principles and standards for board leadership, which can be tailored by organisations according to the unique conditions that apply to their own situations. The Code encourages a chair to personally contribute to the organisation’s annual report, to report on a board’s leadership and effectiveness.
The Code suggests that a board’s purpose is to ensure the company’s purpose, values and strategy are aligned to the corporate culture and workforce policies and practices. It also encourages the board to establish a framework of prudent and effective controls and ensure effective engagement with shareholders and stakeholders.
However, it also stresses that there should be clear division of responsibilities between a chair and the CEO. The chair is expected to deliver objectivity and to promote openness and debate. They should ensure there is a balance of skills within the board and that directors receive timely, clear and accurate information.
Non-executive directors (NEDs) should be willing to provide sufficient time to the role and should be equipped with the ability to sufficiently challenge decisions, in a constructive manner, whilst offering strategic guidance and specialist advice. They should be able to hold management to account.
Whilst the code also considers remuneration and audit and risk, it should be noted that, when it comes to succession planning, it suggests that there should be formal, rigorous and transparent procedures, which pay due attention to diversity and inclusion, but which also promote people to the board on merit.
Division of board responsibilities in practice
A study published by the University of Reading[i] has suggested that the division of responsibilities between chairs and CEOs is often determined by the type of issues faced by the organisation. It categorises these into ‘wicked problems’ and ‘tame problems’, with the former being internal-relational or external-hostile and the latter being transformational-internal or industry-internal.
In the case of wicked problems, it says that the chair often takes on the leadership role or a collaborative, joint leadership role. With tame problems, the chair reverts to a role as a vigilant monitor, allowing the CEO to take the lead.
The study highlights that some commentators argue that the chair and CEO should come together in difficult times – those of ‘discontinuous change’. Originally, such times were only viewed in technological terms, not societal or economic/financial. Now, it can be argued that, in 2023, we are facing a period of discontinuous change in all three aspects.
So, is it reasonable for a chair and CEO to have the division of responsibilities that the UK Corporate Governance Code suggests, or should chairs and CEOs be tackling issues according to their wicked or tame nature? Episode 18 of our Space2BE podcast, ‘Leading Boards’, features Andrew Meehan, our hugely experienced turnaround consultant and former chief executive, non-executive director and chair of various boards since 2006, examined what the role of a chair should be in 2023, in much more depth.
The role of a chair and NEDs in 2023: the Space2BE view
Andrew believes that both a chair and non-executive directors (or trustees of a not-for-profit organisation) need to retain their objectivity and be in a position in which they can ask the right questions of the CEO and directors of a company. Whilst their expertise can be invaluable in present times, they cannot get involved with the ‘doing’, or the ability to question and challenge simply does not exist.
Whilst it can be advantageous for both a CEO and non-execs to walk the shopfloor and gain an understanding of the business, Andy also believes there is inherent danger attached to this, if one of these board players starts to think aloud, debating things that the employees might feel are happening, but which are actually just hypotheses.
As Andy says: “A board is a collective, but it is the executives who must do the doing.”
His view is that a chair should be there to encourage and interrogate; question and be constructive in adjudication. A chair should trust others to be brilliant, thanks to the expertise they individually bring to the table. They, however, need the skills to marshal and channel all of this expert knowledge, ensuring it is all supportive of the company strategy and supported by an aligned corporate culture.
Three challenges to be tackled by boards in the next 5 years
Andy sees three major challenges facing boards over the next five years. These will be faced, in many cases, by what are now ‘shamrock’ organisations, as first identified by Charles Handy. These are organisations that have a core of experts who manage key tasks internally but who also have various parts of their operation outsourced to expert partners, who all need to be managed in an optimum fashion.
The third part of the shamrock is the workforce but that too is becoming less stable, with much more churn and flux in the workplace and with many employees now working from home or working on a hybrid basis. Managing this more fluid type of organisation is a new skill for some boards to master, with external partners needing to be motivated in the same way as internal personnel and the establishment of trust-filled partnerships being vital.
The second challenge Space2BE sees is that of the economy, starting with inflation and possible recession, at a time when post-Brexit trading situations have still not been resolved. This will lead to challenges around salary expectations but also employee management issues, with employees and their families potentially suffering from energy and food price hikes, mortgage increases and other financial pressures, with all potentially impacting on wellbeing and mental health in the workplace.
The third challenge is that of political instability and lack of clear strategic pathways by regulators, which is often leading to companies having to take the lead on many parts of the economic, environmental and social agenda.
How chairs can lead boards through new mid-2020s challenges
These challenges need to be tackled by boards in the coming months and years and chairs need to maintain their integrity by allowing the means through which they are tackled to be determined by the directors, whilst using their guidance, consultancy and constructive criticism, when required and orchestrating the views of all involved in board discussions.
To do this, Space2BE’s Andy Meehan says that chairs need to be “authentic” leaders, whatever challenges are thrown at them, to bring directors along with them and channel their energies. They need to recognise that they do not know the answer to every question and make sure they are surrounded by the people who do.
They should focus on the ‘we’ and not the ‘I’ in any situation and lead by treating people how they would like to be treated themselves. Striving to be humble and respectful is a great pathway for any successful chair.
Chairs should remember than a happy board is a successful board and make sure they retain a focus on wellbeing and happiness, having a respect for others’ right to relaxation and family time. However, just as important for trustee boards in particular where board members volunteer for the unpaid role, it is imperative that they actually put in the effort and show the commitment required of them.
Even if used to a more authoritarian style of leadership, adopting these principles should enable a chair to operate just as effectively in today’s less formal leadership environment as they did previously.
Board leadership and social issues
PWC’s 2022 Corporate Directors Survey found one area of change required in board leadership, identifying the need for boards to do what most are not – discuss social issues. In an HBR paper, Andrea Hagelgans and Lex Suvanto have talked of the need for CEOs to devise a ‘thoughtful decision framework’,[ii] to ensure that their companies’ words and actions are drawn from their purpose and have an authenticity for the organisation.
Chairs should be helping to identify the social topics that matter to stakeholders, how many stakeholders are affected by these and what sort of voice the organisation has on these issues. From there, they should guide the board to focus on how closely these align with the organisation’s purpose, vision and strategy and assess how appropriate it would be to take action on these. Being able to understand stakeholder viewpoints, as well as prioritising and giving appropriate weighting to social issues that may be of concern to them, is a growing part of being a chair in 2023.
Board leadership and the removal of gender-based barriers
Chairs in 2023 need to be ensuring their boards attract the best talent and a wide variety of skills and expertise into which to tap. Although this has led to many boards offering executive roles to women, many of those women directors report having to adapt their behaviour to suit gendered expectations.
A report in HBR by Tiffany Trzebiatowski, Courtney L McCluney and Morela Hernandez[iii], suggest that women are “walking a fine line between expressing competence and warmth on corporate boards”. They add that “women are expected to demonstrate both stereotypical masculine traits, such as directness and competence, whilst also presenting feminine qualities, including warmth and empathy towards others.”
The challenge here is for chairs to get to grips with their boardroom culture and take steps to ensure that participation is inclusive. This is vital, if the benefits of a diverse board, in every aspect, are to be derived. Tokenism cannot exist with regard to board appointments and, once appointed, all members must be allowed to have a voice and express viewpoints and opinions, without fear of being ignored or shot down. Creating this environment is a key part of being a chair in 2023, particularly as ‘new blood’ is likely to be brought into many more boards in the coming years, as the need to plug boards’ skills gaps becomes ever more evident.
Ensuring that decisions are made in the right way, by the right experts and with the right degree of involvement, support and facilitation, is the key part of being a chair in 2023 and beyond.
Our overview suggests that training of chairs and board directors will be a crucial factor in many organisations’ corporate success stories over the next few years, as the challenges mount and societal and technological change continues at pace.
If you need assistance with any part of board leadership training, facilitation or effectiveness, or with the skills development of any individual board members or those that will become part of your board succession planning, please get in touch. Our Space2BE experts have many decades of experience to provide for your development, leadership enhancement and talent enrichment. Just call us on 0208 720 6991, to discuss.
Should you wish to listen to the podcast with Andrew Meehan, head to this link: https://space2bespodcast.buzzsprout.com/1817593/12266716-episode-18-leading-boards-with-andrew-meehan