Thank you very much to those who completed the Board of the Future survey. Your involvement has given us some valuable insights into the quality and focus of leadership. A measure of any board’s worth is its flexibility and ability to respond to change and challenge. The survey shows a significant altering of priorities, particularly towards employee well-being and the shape of the future workplace. Concerns that were high on the agenda pre-Covid remain so: digital transformation for example, an area which is likely to see an even greater pace of change. It will be interesting to see this time next year, in hopefully a Covid-light situation, if these altered priorities remain high on the agenda.
The objective behind the survey was both to establish boardroom priorities and how well boards are equipped to guide businesses through the next decade of the twenty-first century. Board member or not, senior in-house counsel have a critical role to play in helping boards understand the legal risks of the choices they face. In the majority of cases, the legal view seems to be integral, with 76% of respondents reporting that their legal function has sufficient representation on the board.
Priority areas
The survey asked what areas were the highest on the board agenda pre- and post-Covid. There have been significant shifts in rating and emphasis (see table below).
| High | Medium | Low | |
|---|---|---|---|
| Pre-Covid | Digital transformation (37%) | Shareholder and stakeholder engagement (19%)
Culture and corporate conduct (15%) Diversity and inclusion (11%) |
Employee wellbeing (11%)
Supply chain (9%) Environmental protection (7%) Future workplace (6%) |
| Post-Covid | Digital transformation (46%)
Employee wellbeing (45%) Future workplace (34%) |
Shareholder and stakeholder engagement (31%)
Diversity and inclusion (23%) Supply chain (23%) |
Environmental protection (14%)
Corporate and culture (13%) |
Digital transformation
This area was rated highest pre-Covid. It remains in this position and it has also increased in significance. When asked if the board could spend more time on just one of these considerations to make the greatest difference to their organisation, 43% responded with digital transformation. The majority felt that their board had responded well to the changes presented by technology and also that they had the appropriate knowledge to respond to its continuing evolution. This confidence is heartening but does not explain the digital gap that persists between belief in the promise of technology and its practical application. Digital processing and purchasing has worked well during Covid; employees and customers have ably taken up each new service development. Perhaps this greater level of confidence will encourage more companies to embrace the more sophisticated use of artificial intelligence for improved analysis and virtual reality for improved engagement that leads to greater digitalisation. While the legal function will not lead the change programme in this area, it has an important role in helping the board to understand all the business and legal risks arising from such change and to establish a new framework of governance.
Wellbeing and future workplace
Post-Covid these two subjects now also appear in the high priority area. Wellbeing has experienced the most significant shift in importance, jumping from 11% to 45%. The future workplace was originally rated the least significant and it is now in the top three a change of 28%. Wellbeing took on a very particular complexion during Covid, but looking ahead it remains connected with the way people work and where it is undertaken. A positive aspect of Covid is the greater appreciation of every type of work, a greater understanding of how a professional life interacts with a personal life and a greater democratisation. However, when asked about how their workforce raises matters of concern, 16% said that there was no formal means of information exchange. At the very least, best practice governance requires that the employee voice is heard.
How employees raise concerns
Supply chain
The perfect storm of both Brexit and Covid has heightened risks around business critical supply chains. If there was any prevarication about the impact of Brexit, Covid quickly changed consideration to action. Supply chain considerations for the board have moved from low to medium priority. ‘Just in time’ no longer seems like the only route, evidenced by the increased demand for domestic warehousing space. The survey identified planned changes to suppliers and storage facilities. Legal advisers will be at the heart of rapid contractual changes, both cancellations and new partnerships.
Changing supply chain operations
Diversity and inclusion
D&I is now a regular part of board discussion and the board has become more diverse in itself, in the majority of cases. This is despite 18% expressing the view that there had hardly been any change.
The area that has seen the most progress across the business is gender diversity, with 51% of respondents putting this is in the lead, when compared to other categories of social and ethical, age, cognitive, parent and carers and disability. Only 2% said that their organisation has made the greatest progress regarding disability. 25 years have passed since the Disability Discrimination Act but many obstacles remain in the way for those whose lives it was meant to change. Covid has given a glimpse into the impact of frustrated ambition for many more of us, whether that is as simple as restricted access or as far reaching as thwarted careers.
Environmental protection
While this has increased in priority over the period it remains a low priority for many boards. This could be because 45% of respondents said that climate change strategy had been reviewed in 2019-20 and 10% were planning to do so this year. With so many calls on their time boards may yet have not been able to turn their attention to this area, but pressure to do so is increasing from both government and stakeholders. The government has stated that carbon reduction is integral to Covid recovery plans, with clear targets to reduce greenhouse emissions by 68% by 2030 and further to 2050. Government wants to ensure that climate change is addressed at the highest level of corporate leadership.
Transactional activity
The pandemic has caused some boards to pause transactional activity. Pre-Covid some 64% of respondents signalled their intention to change the corporate structure in some way (see table below). Post Covid this has fallen to 47%. Some 20% are though still intending to acquire. The survey was undertaken when vaccination was still only a hope for the future; and it would be a reasonable to anticipate that confidence will rise again as more of the population is vaccinated.
| Transactional activity | Pre-Covid | Post-Covid |
|---|---|---|
| Sale | 18% | 12% |
| Merger | 9% | 5% |
| JV | 7% | 9% |
| Acquisition | 30% | 21% |
Conclusion
Resilience and flexibility were always the stuff of winners and the pandemic has underlined this. With reference again to author Richard Watson, the pandemic was not a black swan, it was anticipated – but too awful to contemplate. Stress testing was one of the governance changes that arose from the ashes of the 2008 financial crisis for the banking sector. Reverse stress testing is a now requirement for some financial institutions, in which testing starts with the identification of a pre-defined outcome; failure of the business model for example. A renewed focus on ‘going concern’ is outlined in the ICAEW’s reforms for a more reliable core audit and reverse stress testing can be used to enhance these assessments. It seems that the health crisis of 2020 has also underlined the importance of the principles of stress testing for the wider business community.