Changing Requirements and Consequences for Contemporary Directors

Corporate governance arrangements from an era of globalisation, convergence, relative stability, freer trade and financial performance concerns are having to cope with nationalism, geopolitical fracturing, polarisation, existential threats and a wider range of challenges, including uncertainties relating to hot and hybrid warfare, trade and protectionism, sanctions, security and disruption to supply chains. As views, government priorities and reporting requirements change and diverge, the boards of companies that operate internationally may have to contend with a greater diversity of governance systems. Their priorities are greater flexibility, resilience, adaptation, coping with a myriad of inter-related issues, and survival.

Many boards seek new ways of obtaining counsel on geopolitical and other current concerns, as specific governments seek to interfere more in the affairs of certain foreign controlled and related companies. In some jurisdictions, there may be requirements to do things differently and diverge from international standards and practices elsewhere. Boards may have to accommodate the desires of some governments for greater self-sufficiency, controls on the activities of foreign enterprises and favouring of domestic entities. Nationalist, protectionist and autocratic pressures may motivate changes to laws and regulations, and interference in activities thought to be under the influence or control of an external government.

If humankind is to survive and the negative externalities of corporate operations addressed, more directors may have to develop a still wider and planetary perspective.

Implications of changing realities for perspectives and relationships

While managers and many executive directors focus on the achievement of internal objectives relating to their functions, departments or business units, the more holistic and strategic perspective of directors should be longer-term and embrace the totality of corporate operations, the contexts within which a company operates and relationships with stakeholders. Board chairs should be alert to directors being drawn into operational matters during board meetings. Day-to-day issues that arise in competitive markets may be harbingers of a matter that might require board attention, but too often they are allowed to intrude on board time that should be devoted to more consequential areas.

As external realities change, boards should not assume that stakeholders remain onside and aligned with their priorities and what they are seeking to achieve. Some companies appoint chief stakeholder officers to support directors in their engagement with stakeholders and monitor stakeholder feelings about certain issues, challenges, opportunities and threats. The perspective of directors should embrace supply and value chains and networks of collaborative relationships, including those with non-human participants including semi-autonomous AI systems, extending the range of their monitoring and strategic overview.

More and regular interaction with stakeholders may become both advisable and necessary, raising questions about their formal and informal involvement in governance arrangements and processes. The greater inter-relationship of issues, risks and existential threats and the fragmentation and polarisation of views may prove challenging for some board members. It might further complicate the drawing up and agreement of board agendas, corporate policies and collective positions. More frequent meetings and additional interactions between them may be required. Cosy consensus and groupthink might be less often observed.

Implications of contextual developments for governance arrangements

Ideally, governance arrangements should help to make companies more accountable, adaptable, flexible, resilient, responsible and sustainable in relation to their situation, context, stage of development, capabilities, opportunities and threats. They should enable rather than inhibit innovation, growth and simultaneous action to cope with inter-related issues, balance the contending interests of polarised stakeholders, and handle multiple time horizons from short-term reactions to collective initiatives to address longer-term challenges. A shared vision and purpose and tolerance and respect can enhance resilience.

Members of corporate boards increasingly find that lessons drawn from experience and attitudes, opinions and views developed in a previous era may not be applicable today. Governance arrangements may have to devote more attention to updating, regular reviewing and more deliberate reinventions. If they are to remain at a manageable size, many boards are unlikely to have members with expertise relating to the greater diversity of issues, risks and challenges often facing various elements of a business, especially when situations, circumstances and contexts are more uncertain, volatile and evolving.

Some elements or strands of a business, and its supply chain partners and their business models, may need to be organised differently from others. Governance, financial and reporting arrangements will require the flexibility to encompass and handle such variation. Previous director, board and corporate assumptions, practices and priorities may no longer be relevant or applicable. Intelligent steering and more frequent challenge with 'what if' scenarios may have to replace annual corporate planning exercises where and when their outputs are quickly overtaken by events. Reviews of risks may also need to occur more often.

Increasing pressures upon corporate directors and executives

Many responsible directors find their roles are becoming more demanding. The positions of colleagues on some issues and their allegiances might be more difficult to predict. Familiar annual calendars of meetings with largely formulaic agendas may not cope with events that are unpredictable and unprecedented issues which arise and require attention. Time may not be available to tap relevant expertise and/or prepare the papers for board meetings that some members have come to expect. Greater flexibility of practices, timings, frequency of reviews, scrutiny and the nature, conduct and management of meetings might be required.

In many jurisdictions, and as global risks and existential threats multiply, properly discharging the duties and responsibilities of a company director has become more onerous. Stakeholders may also be more alert to evidence of over boarding. Additional steps that individual board members might take, when obtaining information and seeking assurance, can be distracting for busy executives wrestling with corporate responses to external challenges. A sense of proportion, coordination and new ways of sharing what is learned may be required to avoid executive overload, as directors become aware of areas of vulnerability.

Directors should be sensitive to the pressures the people of contemporary organisations are under. Their interactions should be courteous, respectful and sympathetic, and reflect the impacts that board decisions may have upon employees and others. Some leaders consciously ignore evidence and certain global risks and existential threats. When sudden changes of direction and/or policy occur and a board rolls back on a renewable drive or corporate diversity, equity and inclusion policies, some stakeholders may wonder what a company stands for and what a board and its members believe in. Certain moves may be seen as disappointing and regressive, and their justifications as self-serving and hypocritical.

Supporting and preparing future directors for uncertainty, volatility and transience

In the US, references to climate change and other environmental threats have been systematically removed from government websites, related reports supressed, and teams responsible for related research and public protection cut back or dismantled. Criteria for remuneration, rewards, bonuses and incentives may not survive events. New director and NED expectations of time required, the diversity of issues, and the challenge of obtaining assurance and providing oversight without intruding on day-to-day activities and operational matters need to be realistic. Apparent certainty and stability may be illusory or fleeting.

Boards should be better prepared for future disruptions. Many would struggle to handle combinations of scenarios occurring simultaneously. How ready to cope are the individual elements, functions and business units of companies? Most medium and large businesses are likely to experience some form of cyber-attack. Cyber governance codes of practice are available that set out what a board's responsibilities should be, including for providers of software and products containing software, and vendors of specific types of technology.

Given the complexities that contemporary directors must deal with, what role could AI and other support play in corporate boardrooms when what can be learned from experience may not be relevant to today's issues and challenges? Could an application of AI be useful for summarising, simplifying, monitoring conformance, assessing scenarios or suggesting options and courses of action that human scrutiny may have missed, or has it been oversold? Backlash against the risks, biases, errors and vulnerabilities of greater use of AI and concerns about the energy and water needs of data centres may lead to calls for their tighter regulation.

Making responsible calls in a transactional era of exaggeration and misinformation

Some of those who challenge vested interests and prioritise protecting eco-systems and biodiversity, confronting shared risks, addressing negative externalities and operating sustainably are purged rather than encouraged. Generative AI tools should come with a health warning for the naïve and unprepared, as their use can result in potentially disastrous outcomes, discriminate and deliver erroneous and misleading advice. People jumping onto the AI bandwagon may fuel competitive races for market leadership that consume scarce resources and divert attention from action needed to address looming existential threats.

If humankind is to survive and the negative externalities of corporate operations addressed, more directors may have to develop a still wider and planetary perspective. For example, plastic pollution abounds in the oceans that cover 70% of the earth's surface, and microplastics have entered food chains. The recent UN conference on the sustainable use of the oceans, seas and marine resources has highlighted the urgent requirement for action. Over 2,000 scientists have called for a halt on further deep-sea extraction until more research is undertaken. However, the non-participation of the US and the decision of President Trump to issue permits for mining in international waters has been an obstacle to further progress.

Within companies there may be many who would like to do what they feel is the 'right thing' and support responsible and sustainable corporate conduct. Governance arrangements should enable more people to adopt and work for a moral purpose and achieve a beneficial impact. This year's Annual Directors' Conclave will give today's business leaders an opportunity to discuss with their peers what they can do in the contemporary business context to address the negative consequences of attempts to advance certain interests at the expense of a common good, confront existential threats and enhance the prospects of our collective survival.

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