For board directors, to twist Woody Allen’s famous quote, 80% of their effectiveness is in showing up. So what happens to board performance when directors can’t meet in person?
For the better part of a year, as the pandemic forced directors to retreat to their laptops and iPads to carry out their duties, boards have struggled to keep up with their roles, experts say. The issue is not only about being unable to meet but also keeping up with all the dramatically fast shifts COVID-19 has created for the business world. If this continues, some directors are wondering about their purpose—or at least effectiveness.
Charles Elson, a professor of corporate governance at the University of Delaware, says that without in-person access, boards have lost a level of effectiveness. They struggle to find a balance between serving as a strategic asset for management and overstepping their remit amid today’s volatile, constantly changing business conditions. In fact, he says, one of the biggest challenges directors face in a world of virtual governance is getting access to independent information beyond what is filtered to them by management.
“It’s much harder for directors to do their jobs virtually,” says Elson, noting that many decisions pre-COVID were informed by conversations, side meetings, and reading the body language of management, all done in person. He says one way boards can compensate for the lack of in-person access is to designate a director to establish a cadence of regular communication with members of the C-suite other than the CEO and outside of formal board meetings to create a flow of independent information.
In many ways, the current environment is reminiscent of the pre-Sarbanes-Oxley era, when CEOs like GE’s Jack Welch ran their businesses with little, if any, board input. Though boards today are much more involved and feature a lot fewer insiders beholden to the CEO, directors have granted management a greater level of independence amid the pandemic, particularly as it relates to operational issues. “Boards understand the extreme pressure CEOs are under and, as a result, have been more tolerant of their prerogatives,” says Joe Griesedieck, a Korn Ferry vice chairman and managing director of the firm’s Board and CEO Services practice.
In the absence of operational input, boards have instead shifted their focus to helping management sort out major potential risks beyond COVID-19, such as supply chain vulnerabilities or cybersecurity issues related to increased e-commerce. Both the pandemic and this year’s civil unrest also highlighted for boards the reputational risk to organizations without a strong purpose and strong diversity and inclusion practices. Moreover, says Stu Crandell, a Korn Ferry senior client partner and assessment leader for the firm’s Board and CEO Services practice, directors have become much more focused on succession issues—not only in case the CEO gets infected but also to evaluate their performance navigating the crisis. Crandell says the pandemic is forcing boards to look at CEOs through a different lens, asking, “Did the CEO step up or not?”
Of course, one of the biggest risks organizations face is that their boards don’t have the skills and agility to step up themselves amid the changing business landscape, says Jeffrey Sonnenfeld, senior associate dean of leadership programs at the Yale School of Management and president of the Chief Executive Leadership Institute. He points to the high number of CEOs and directors who stepped down this year not as an ominous sign, but rather as an opportunity to appoint new directors with expertise that better aligns with changes in strategy. “To be effective, boards need to be more nimble, and that’s hard to do when the business is changing and they are isolated in a virtual environment,” says Sonnenfeld.
Moreover, despite organizations implementing term limits and annual elections, director tenure still averages more than a decade. What that essentially means is that despite the rash of departures this year, board refreshment isn’t accelerating in tandem with the pace of business. Or as Griesedieck says, “Organizations are changing strategies fast, and the skills and experience on the board need to keep up.”