2. An outmoded, mostly manual modus operandi
A natural consequence of this overload is that some management teams are operating on the basis of “if in doubt, tell them everything”. So the boards of these organisations are drowning in data and information. As one interviewee stated: “We are routinely dealing with 400-page audit committee packs and 800-page main board packs.”
To add to the challenge, there’s little evidence of boards using technology – in particular, AI – to help them interrogate and draw insights from all this data. Another interviewee explained, “Boards in Australia tend to suffer from a legacy mindset where they think that becoming a digital company is a special thing, as opposed to a matter of survival.”
This 'high-touch, low-tech' approach is preventing directors from carving out the time for important conversations. Whether their structure and processes should change to fit the volatile, uncertain, complex and ambiguous (VUCA) world, for example. How they could integrate sustainability into their broader purpose. Or, how the organisation could evolve to reflect the growing focus on stakeholder capitalism.
It’s also depriving boards of the speedier, better-quality decision-making and reporting they’ll need to succeed in a much faster-moving, more ambiguous world.
3. Looming gaps in skills and behaviours
The skillsets of boards will have a massive impact on their ability to tackle these challenges. But while our interviewees saw digital literacy as vital, they were also concerned that the traditional, procedure-driven approach is no longer delivering.
“You can retreat behind your need to tick every box and comply with every rule,” said one interviewee. “But actually, your company faces a vital need to transform. So, at the heart of it, do you see yourself as an oversight controlling process? Or do you see yourself as the most senior leaders in the business, responsible for strategy, leadership, culture? If you do, then you are challenged like never before.”
Diversity in all its senses will be integral to shifting to this new mindset. Yet 'observable' diversity – of race, gender and so on – is moving slowly. Diversity of thinking and decision-making styles remains embryonic. “You’d expect board X and board Y to have some pretty close similarities, and they do,” said one interviewee. “They've got the marketing person, the political person, the customer person… and in some cases, it’s sort of okay. The problem is what we don’t have. Where is the hipster? Or where is the 30-something entrepreneur who's running an FMCG business even though we do e-commerce? Is that diversity?”
4. An identity crisis around stakeholder priority and environment, social and governance (ESG)
The EY study showed that board directors in Australia feel the growing pressure to meet public and investor expectations around sustainability and stakeholder capitalism. To quote just one: “Boards need to recognise we are part and parcel of the social and economic fabric of our communities. That recognition may have been implied in the past, but it’s overt today.”
Yet, despite this awareness, they’re struggling to break away from the gravitational pull of short-term earnings. Research in 2018 found that 83 of the top 100 listed companies in Australia identified the interests of shareholders as their top business priority.
The debilitating focus on risk raised in point one of this article, plays into this. But as one interviewee explained: “It’s worse in this part of the world because we don't have a lot of big companies to invest in; the investors are therefore all over the companies that are available. There's an incredibly short-term lens on reporting timings and any company that needs to undertake transformation is trying to do it under the spotlight of this short-termism.”
These competing pressures create an expectations gap about directors' roles, responsibilities and levels of control. “There is a massive disconnect and misunderstanding in the general world, as a consequence of inquiries and some of the things that have gone on, as to what role the board can realistically play,” said one interviewee. “So, everybody will agree that there's a big chasm. I think where people don't agree is which direction we should move as a consequence, or how you resolve that chasm.”
What’s the cumulative impact of these challenges?
Each of these areas is substantial on its own; together, they point to a systemic, unsustainable set of pressures that isn’t likely to abate.
The COVID-19 pandemic has added an interesting new dimension. By taking up much of boards’ attention, it’s pushed less immediate issues on to the back burner.
At the same time, it’s given boards a taste of the pace, responsiveness and flexibility they’ll need in a VUCA world. It’s no wonder that even the directors who said they and their boards are currently coping, are feeling concerned.