Increasing Board Agility Is Critical To Risk Oversight
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This article was originally published in NACD Boardtalk on September 23, 2021. 

You’re on mute.

This must have been one of the most spoken phrases over the past 18 months as many organizations moved to online meetings and video conferences. The mobility restrictions associated with the COVID-19 pandemic created opportunities to innovate and, in many instances, offered a crash course in being agile—a critical requirement of boards.

As a result of the pandemic and other events of 2020, the scope and scale of issues on the board risk agenda have fundamentally changed, as have many aspects of governance processes. Going forward, boards must build their agility to enable organizations to navigate the new cadence of the business and risk environment.

As a previous NACD BoardTalk post noted, an agile board can “identify and respond effectively to rapid and unexpected changes in the internal and external environment. It is characterized by a forward-looking and exploratory approach that challenges and nurtures both current and future business, enables quicker decision-making, and supports the organization to be more adaptable and innovative when confronted by change.”

To gain insight into the practices adopted and lessons learned from 2020, including on board agility, NACD and Marsh McLennan worked with the Global Network of Director Institutes (GNDI) to conduct a wide-ranging survey of nearly 2,000 directors. The research team also conducted eight accompanying interviews with seasoned directors to provide rich context for our findings in this article.

Overall, 89 percent of the surveyed directors feel their boards have been able to effectively govern during the pandemic—indicating an ability to adjust to the demands of virtual governance, such as increased or even weekly full-board meetings during the height of the crisis. Further, 34 percent are planning to alter their board operating model (including with changes to meeting agendas) based on experiences and learning from the pandemic and responding to other challenges in 2020 and 2021.

Delving further into the findings, we can see that three key elements of an agile board have emerged:

First, the agile board is hybrid. Directors have upskilled themselves and gained comfort with virtual meetings over the course of the pandemic, and 89 percent of GNDI survey respondents agree that digital board engagement would be a helpful tool for board operations moving forward. Additionally, 78 percent expect that at least one in five committee meetings and some full-board meetings will be virtual post-pandemic. As one director that we interviewed for this article noted, being “virtual-first is a great way to rethink the rhythm of board meetings and allows the board to quickly connect on issues as opposed to waiting for board meetings.”

Virtual meetings have many benefits since directors can quickly meet to address fast-moving issues and they free up director time that can be applied to essential board and committee work. In addition, the virtual format requires a more structured and efficient committee agenda to fulfill fiduciary obligations. In one director’s pandemic experience, “The board quickly adapted to a communication structure that was not scheduled and was able to function much more intensely in a virtual world.”

While many directors agree that virtual board meetings are as effective as in-person meetings, there are serious challenges. In the future, boards need to explicitly implement approaches to ensure fully engaged directors in a virtual world. More than two-thirds of GNDI survey respondents (68 percent) noted the negative impact of reduced nonverbal communication among directors during virtual meetings. Board chairs may also need to take additional steps to ensure that minority views are represented, which may be more challenging virtually. Finally, boards may need to reconsider how to apply decision-making techniques such as “red teams” or “tenth man” (where at least one person is appointed to serve as the loyal dissenter) in a virtual world.

As hybrid and virtual board meetings become the norm, boards will need to adopt better tools to support digital board governance, including those used to share secure governance documents, vote, or communicate confidential information.

Second, the agile board uses a range of insights to support decision-making. An engaged, responsive, and agile board is a vital sounding board for the CEO and their management team. Providing fresh perspectives on difficult issues is critical.

Agile boards are implementing new processes to provide informed input and challenge decisions around strategic issues, as well as to improve risk oversight. For example, 70 percent of survey respondents said they will make greater use of outside experts in scenario planning, strategy, and risk decision-making processes. Sixty-six percent expect to incorporate a broader set of risks into the board information dashboard. Boards may need to adjust their agenda to allow more time for such exercises and exploratory discussions, putting an even greater emphasis on the need for efficient and effective committee processes.

Sixty-three percent of surveyed directors also report that they plan to increase the use of data analytics in the board decision-making process. This may include incorporating digital and analytical tools that assess the risk environment and organizational performance—tools that scan publicly available information to create dashboard summaries of employee sentiment or tools that conduct an outside-in scan of cybersecurity, for example.

An engaged, responsive, and agile board is a vital sounding board for the CEO and their management team.

Information tools provide board members with efficient access to a much greater range of insights, key metrics, and benchmarks, generating deeper understanding—all of which can support a necessary focus on emerging trends and strategic issues.

Finally, the agile board embraces continuous learning. “Board members do not need to be expert at everything but need to be able to constructively challenge and question management,” one director said. “That requires a certain kind of board member—someone who is in continuous learning mode.”

Agile boards embrace continuous learning in two key areas: organizational strategy and business model, and the expanding spectrum of events and trends driving changes in an organization’s business environment.

Directors are more engaged and involved in robust dialogue across various levels of management than ever before—without impinging on management’s operational role. This enables the board to actively debate and challenge management on their risk assessments, decision-making processes, and conclusions. Many directors noted that these debates are vital to helping management “see around the corners.”

Boards are also turning to directors from a range of professional backgrounds to increase cognitive diversity in the boardroom and to tap expertise on evolving issues such as cybersecurity, digitalization, and environmental, social, and governance (ESG) topics. Increased boardroom diversity across all vectors has many benefits. Still, onboarding a cybersecurity or an ESG expert does not relieve other board members from developing a robust understanding of the interaction between evolving risks and trends. Most boards have about 10 members, and as organizations face a widening array of issues, no board can have an expert on each topic. Since they cannot be “know-it-alls,” boards must become “learn-it-alls.”

Each director must commit to a boardroom culture of continuous learning and inclusivity of diverse experiences, expertise, and insights on evolving topics to support an active and effective boardroom.

With this mandate, board and director agility is vital to supporting management and ensuring that organizations move nimbly through a challenging risk landscape.

Marsh McLennan and NACD thank the following NACD members for sharing their insights for the development of this article: Anthony Anderson, Sam Di Piazza, Roy Dunbar, Cynthia Jamison, Shelley Leibowitz, Sara Mathew, Jan Tighe, and Suzanne Vautrinot.