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Nov 15, 2021

How do boards add value amid Covid-19 challenges?

Professor Roy Ling talks future-proofing and the role of IR in supporting the board post-Covid

With more than 16 years of corporate governance experience, serving on more than 20 public and private boards across Asia, I know that the more time directors spend on oversight and strategy – and the effectiveness of that output – the more these factors drive value creation, ultimately feeding back to the boards themselves.

To be successful at creating value, my experience has shown that boards must:

  1. Spend an average of 20-30 days a year on board work and ensure the time spent results in executing board mandates effectively
  2. Maintain a well-rounded team with a culture of trust and respect, where directors and management challenge each other in constructive feedback
  3. Appoint an effective chairperson who runs meetings well. Good leadership sets the tone for the board as a whole and sets the stage for a more value-enhancing board.

How do you assess the effectiveness of a board?

A review of the board’s agenda is a good way to measure board effectiveness. If the same items are appearing on the agenda again and again – with no resolution – that is likely an indication that the board lacks the necessary expertise to deal with the issue. Boards must also undertake regular self-assessment across three areas: composition and dynamics, how they perform specific tasks and how they operate.

Two main evaluation formats are available in practice: questionnaires and interviews. Questionnaires take less time than interviews and are more popular, but directors can be reluctant to make contentious points in writing. While interviews are relatively time-consuming, they can elicit more candid responses.

The feedback process cannot be entirely inward-focused, though. An external perspective, such as from senior management with close involvement with the board, is valuable. The board may also wish to periodically engage an external board consultant for a ‘health check’ to evaluate the feedback process and to conduct a deeper understanding of the responses it gets.

How do you keep yourself updated as a board member? How can boards better engage with management in strategy formulation?

  1. Engage between board meetings. This is not just about spending more time on board strategy, but also about being able to connect with management between meetings and staying current. How often should the board meet? Boards needs to experiment to figure this out but the key is to remember that boards are only as good as the information they have access to.
  2. Engage with strategy as it is forming. I like to participate early in the formation of strategy and stress-test it along the way, as opposed to reviewing a strategy that’s been fully thought through by management.
  3. Engage on the tough questions. I believe the importance of asking uncomfortable questions extends beyond strategy sessions to a wide range of issues. Not every board member necessarily needs to have industry experience, but you must have the courage in the boardroom to ask the difficult questions.

Boards learned difficult lessons from Covid-19

While many boards would be tempted to refocus from long-term growth to short-term survival due to Covid-19, this would be a grave mistake. Instead, they should capitalize on the Covid-19 opportunity to reposition and pivot the company to strengthen its positioning and come out ahead.

Boards need to be aware of three things:

  1. Resilience comes through speed. Covid-19 gave rise to many unknown certainties and fluid changes. But boards need to guide management processes for fast responses. The point isn’t to have the right answer but to build organizational capability to learn quickly why your answer might be wrong and adjust faster than your peers do
  2. But beware of a gulf between board and management and workers. While it is relatively easy for board and management to switch to remote working, and they see it as effective and efficient, those in the trenches may not feel the same
  3. More than ever, a bias to action is essential. And this will frequently mean getting comfortable with boardroom disagreement.

These difficult Covid-19 lessons helped reposition board thinking for digital transformation and ESG reporting. These are the large discussion topics for boards today.

1. Risk management: Figure out what is an opportunity and what is a threat

In today’s global and active economy, the lines between competitive markets have never been blurrier. For example, is Amazon a consumer company, as it sells everything from groceries to garage-door openers? Or is it a technology company, as it owns and operates the legions of computer servers that make e-commerce possible? With all the crossover, it’s very difficult for board members to assess whether all the disruptions are accelerators to the organization’s growth, or roadblocks.

2. Information overload: Everyone has information – learn how to connect the dots better

Access to information used to be a huge cost for businesses. That has gone down enormously. Today, the real questions are: what does the information say? What does it mean? And how do we use it? Whole businesses are changing and boards have to adapt. What boards have to do is anticipate what will create value and how that impacts the organization, and evaluate whether the right leadership is in place to make those pivotal operating decisions on a day-to-day basis. Boards of the future must look forward in a different way and think with a different level of expansiveness, involvement and opportunity building.

3. Talent alignment: Close the gaps between strategy and talent

In the end, it all comes back to talent and succession, which are tightly aligned. This is a huge topic because of the rapid pace of change in digital transformation. Talent starts with the board and permeates through the company. Boards really need to have diversity in the boardroom to provide nimbleness in thinking and diversity of perspectives in their discussions.

Investor relations bridges the information gap

When companies are surprised by activist shareholders, it’s often because management and the board don’t have a good idea of what investors are thinking and what their critical issues are. The investor relations officer must react fast to bridge this gap. The IRO must proactively build constructive relationships throughout the shareholder base and the board needs to empower IR professionals with a clear mandate for investor dialogue, allowing them to get stakeholder support for the company’s long-term strategy.

Professor Roy Ling is CEO & founder of FollowTrade. He is also an adjunct professor in finance at the SKEMA Business School, an academic program director at SMU Academy and an independent board director on several listed companies in Asia. He is also on the judging panel for the IR Magazine Forum & Awards – South East Asia 2021