Communicating but Not Connecting

Unable to meet in person, directors struggle to keep up with their companies’ responses to everything from pandemics to civil unrest.

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To stay relevant, smart boards are shifting their influence to key overview issues that look beyond COVID.

The relationship has always been a little awkward, with one side peering in and advising and the other running the show. Then, suddenly, it changed. After going through such a traumatic event, there was no way it couldn’t.

There’s no doubt that the pandemic has altered the connection between board directors and the leadership of the companies they oversee. Forced to retreat to their laptops and iPads to carry out their duties, directors find themselves in a new position, struggling to find a balance between serving as a strategic asset for management and overstepping their remit amid today’s volatile, constantly changing business conditions.

Communication between the two sides is more frequent, for sure. But based on conversations with leaders, directors, and governance experts, it is often less meaningful, with management keeping boards apprised of decisions instead of soliciting guidance and advice before making them. In fact, according to Charles Elson, a professor of corporate governance at the University of Delaware, 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.

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“Virtual meetings are never going to be as effective as in-person meetings,” says Elson, noting that a lot of decisions pre-COVID were informed by conversations, side meetings, and reading the body language of management, all done in person. Without that access, boards have lost a level of effectiveness, seemingly watching instead of overseeing management, he says. “It’s a lot harder for directors to do their jobs, and there’s a sense among some that they didn’t quite sign up for this,” Elson says.

In many ways, the current environment is reminiscent of the pre-2000 era before federal rules on companies were beefed up, 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.

But that doesn’t mean boards can’t—and aren’t—watching CEOs closely. To be sure, one by-product of the pandemic is that 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. Stu Crandell, a Korn Ferry senior client partner and assessment leader for the firm’s Board and CEO Services practice, says the pandemic is forcing boards to look at CEOs through a different lens. “They’re asking, ‘Did the CEO step up or not?’?” he says.

In fact, in the absence of operational input, boards have instead focused their attention on helping management sort out risks. Crandell says supply chain breakdowns last spring and the rush to e-commerce underscore the kinds of risks organizations face, pandemic or not. Moreover, both COVID-19 and this year’s civil unrest highlighted for boards the reputational risk to organizations that don’t have a strong purpose.

But experts say none of this matters if the directors themselves don’t have the skills and agility to keep up with the changing business landscape. Despite implementing term limits and annual elections, director tenure still averages more than a decade. The result is that business is moving much faster than boards are being refreshed. “Organizations are changing strategies fast,” says Griesedieck. “The skills and experience on the board need to keep up.”