Boards stepping up: the front line of corporate governance

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Across the board: With climate change, geopolitical tensions and transformative technologies presenting new challenges, boards have a lot to focus on ( iStock)

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Businesses are facing unprecedented change and uncertainty. And boards of directors have an obligation, and an opportunity, to help senior management step up to face it.

Navigating today’s business environment is akin to steering a ship through increasingly turbulent waters. Today’s boards have more to focus on than well-defined business challenges such as industry competition. They must also confront many emerging challenges, including the pressing demands of climate change, the impacts of geopolitical tensions and transformative technologies.

As such, the nature of board governance has irreversibly expanded. It’s not just about profitability and shareholder value anymore. Sustainability issues are going mainstream, hence the rise of ESG. Global investment funds are increasingly committing to Net Zero carbon targets, emphasising the urgency for boards to act. As the front lines of corporate governance working with management, boards have the obligation, and the opportunity, to do so.

Boards have a dual responsibility: they face both mandatory reporting requirements and the need to take an integrated view of long-term value creation for multiple stakeholders. Driven by mandatory global and national requirements, risk reporting and scenario planning for climate and other sustainability matters (such as human capital and biodiversity) are going mainstream around the world.  Failure to comply could result in severe financial and reputational impacts.

Beyond compliance, boards also have a responsibility to step up their role in helping their organisations take an integrated approach to long-term value creation, by, for example, promoting efficient transition to alternative renewable resources and integrating ESG/sustainability into their purpose, governance, strategy and enterprise risk assessments. COP28 in Dubai, this year’s edition of the UN’s annual forum on climate change, revealed that, while progress is being made on innovative transitions to cleaner sources of energy, the private sector will need to accelerate its climate investments as public funds alone are inadequate to finance the shift to renewables and achieve Net Zero targets, especially in emerging markets.

Leading the way

As the front line of governance, boards must educate themselves on a wide array of interconnected issues, risks and opportunities, and lead by example. Green financing and environmental innovation are now front and centre across industries. Likewise, technological challenges in cyber-security and artificial intelligence have climbed to the top of the agenda. Even public health and wellbeing have been thrust into the spotlight due to the far-reaching impacts of the Covid-19 pandemic. This has necessitated rethinking safety protocols and the very nature of work, as the pandemic has led to unprecedented supply chain disruptions and accelerated remote working trends.

While challenges manifest differently depending on geographical and cultural contexts, the essence remains the same: corporate boards globally must engage proactively with an expanding array of social, environmental and governance issues.

The core takeaway is universal: no matter where a company operates, remaining passive on these vital issues is no longer an option. Boards must know that their governance decisions resonate far beyond local or national boundaries. Given the interconnected nature of today’s global business environment, a decision in one region can have far-reaching implications, affecting brand reputation, stakeholder relationships and global operational risk.

Therefore, boards worldwide must equip themselves to tackle these multidimensional challenges, understanding that they are not isolated but part of a complex global tapestry. Ignoring this global interconnectedness risks not just local fallout but could place the company at a strategic disadvantage on the world stage.

The time to act and win the race for relevance is now

Being decisive is not an option but a necessity. Boards that choose to ignore these changes do so at their own risk. In today’s fast-paced and interconnected world, looking the other way is a strategy doomed to fail. Boards are better served by proactively acknowledging these emerging risks and opportunities. As Nik Gowing, former BBC News presenter and business consultant, likes to say, boards must even “think the unthinkable” in their enterprise risk assessments and scenario planning when working with management. He is even blunter in saying that “the conformity that got them (board members and senior business leaders) their jobs” is no longer fit for purpose in this new world.

As the front lines of governance, boards must commit to continuous education and competence-building in an environment of unprecedented change, where speed and sense of urgency is king. Increasingly, regulators are requiring companies to document the specific competencies of their individual board members in ESG and other matters. Survey after survey shows that boards are lacking in ESG competence, including those conducted by Competent Boards in its The Future Boardroom thought leadership portal. We believe there exists a need for a committed and cost-effective strategic partner to keep boards educated and certified on what matters most to regulators, investors, customers, rating agencies and insurers.

The stakes, and the opportunities, are too high. Boards must act.

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