Back to Basics: Focusing on Board Service in an Era of Noise

By Vanessa Mesics, Head of Director Experience, Co-Head of the Nasdaq Center for Board Excellence, Nasdaq

Companies and their boards are facing an era of noise. Across industries, boards are experiencing an exponential expansion of oversight responsibilities in areas ranging from talent development and climate to cybersecurity and artificial intelligence (AI), with more on the way. In this rapidly evolving environment, how can boards and individual board members add tangible, unique value? To some degree, the answer may be as simple as reflecting on the essential aspects of the role of board – which is, at the core, board service.

Focusing on the foundational basics of board service sounds simple enough, but in practice it may not be quite so straightforward. Nasdaq’s 2023 Global Governance Pulse survey found that 84% of surveyed board members, executives and governance professionals expect increased or sustained scrutiny and time requirements for board service in the coming months. Regardless of the environment, excellent board service always calls for looking beyond the surface and thinking layers deep, despite the challenges; keeping the board’s most essential role – to add value – at the forefront.

High performing boards demonstrate a culture of transparency, trust, involvement and curiosity to effectively advise management on enhancing the growth and long-term value of the company. As a group and individually, boards diligently rely on fundamental prerequisites, engaging with employees and stakeholders to listen and seek diverse experiences and skillsets to help understand the ecosystem of their company and the community they serve.

Robust discussion and questioning are essential to the board decision-making process. Each person at the table has a duty to contribute to discussions by asking questions and, when necessary, challenging groupthink. In turn, each input benefits the entire board by encouraging board members to broaden their view on a specific issue and guide them towards the best possible decision.

Additionally, effective boards understand they have a responsibility to be intellectually curious, leverage available resources and share new insights with peers. Such depth of critical thinking, problem-solving and give-and-take are the marks of a mature board. A board that espouses these characteristics and mindsets will be dynamic, agile and well-situated to look around the corner and navigate complex situations.

Nonetheless, challenges boards face in overseeing risks are unlikely to ease, especially in an ambiguous environment. The nature of risks has burgeoned, meanwhile, their degree of impact has evolved to impact entire companies, customers, supply chains and beyond. The board’s ability to have robust discussions, engage in robust scenario planning and adopt an enterprise risk management approach is foundational to effective risk oversight. Given their potential impact, risks emerging in relation to cyber, regulatory, activism, geopolitics and the economy in addition to those inherent in the adoption and disruption of transformational technologies cannot be managed in siloes. Assessing these risks and supporting management as it identifies effective short- and long-term strategies to address them requires the board to be proactive, informed and collaborative in its approach, fostering open communication and leveraging a range of expertise within the company.

Pain points to optimal board functioning may arise owing to factors inherent to the board, but they are not unchangeable. Nasdaq’s Governance Pulse report further revealed that only 7% of responses indicated that their board evaluation process results in specific action plans to address opportunities, risks, and weaknesses. Regular assessment of board culture and board effectiveness with an eye to continuous improvement is a key ingredient to sculpting a dynamic and responsive board that is able to adapt to evolving circumstances and drive sustainable growth. Board and peer evaluations provide insights that help the board, collectively and individually, understand its strengths and identify opportunities across board composition, oversight, engagement and culture and governance processes.

A board and director skills gap analysis, including a skills matrix, complements the evaluation process by providing boards an additional opportunity to ensure that board succession planning is strategically aligned to the future needs of the company. Understanding the existing skills and expertise of the board, the capacity of management and other company personnel to provide subject matter expertise to the board when needed, and the company's long-term strategic plan, are also essential to ensuring the board refreshment and succession remain aligned to the company's needs.

Additionally, board members can take steps to improve their own knowledge base, and the board can consider filling specific knowledge gaps by creating advisory seats for subject matter experts to facilitate the board’s understanding on specific topics. When leveraged together, these tools are an iterative and thoughtful means of reflecting on board culture, composition and succession planning.

A back-to-basics approach centered on the fundamental role of the board and emphasizing the essential elements of an effective board is prudent and strategic. By starting from this principle, boards may be better placed to navigate the noise that challenges corporate governance today and find balance – and even opportunity – in complex situations.

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The views and opinions expressed herein are the views and opinions of the authors and do not necessarily reflect those of Nasdaq, Inc.