By James Beasley, Head of Board Advisory, EMEA, Nasdaq; Sheila Bangalore, Board Member, Games Global; Patricia Rodrigues Jenner, Non-Executive Director, Legal & General Assurance Society

An effective board seeks to add value. In focusing on value-creation and long-term business resilience, boards should comprise an engaged, diverse, independent and active group, which operates in a climate of trust and candor. To enhance governance excellence and support board performance, board directors should seek to leverage the variety of skills and professional experience that each director and prospective director brings to the boardroom.

A Good Board is a Good Board

Today, it is easier to look internationally for the talent and expertise needed in the boardroom. Yet, complex legal and regulatory environments combined with varying business practices in different countries can cause directors to fret over challenges when assuming international board roles. While it is crucial for directors to understand and abide by the company’s regulatory environment, this alone should not discourage directors from taking on these positions. A board is only as good as the sum of its parts and the addition of diverse, international perspectives can bring measurable value to a company.

A good board is a good board regardless of jurisdiction as the basic principles of board effectiveness remain universal. The most diligent boards focus on the skills, knowledge and perspectives they need around the table, and so it is vital that they can attract and support the right directors wherever they may be based. Helping directors to overcome the challenges of working cross-jurisdictionally is an important step to ensure they deliver their added value.

To get the most out of its directors, a board must prioritize openness and honesty in the boardroom. Each director should feel empowered to contribute; diversity of thought should be nurtured; and robust discussion should be encouraged. Understanding each other’s backgrounds and professional experiences and utilizing the breadth of each board directors’ skillsets are essential ingredients of value creation. All of this combines to ensure organizations can extract maximum value for their stakeholders.

The Good Governance Focus Areas

As boards seek to identify ways to embed value and resilience regardless of location and background, it is equally important to understand where that value can be best added. In that spirit, it is recommended that directors learn more about key areas where diligent boards and prospective directors alike can focus their attention.

Culture

In a post-Covid world, culture can be a blind spot with new working practices, global workforces and tight talent markets. Nonetheless, building and maintaining successful relationships across company stakeholders is instrumental to the company’s success.

Board directors can support their corporate culture by demonstrating accountable decision-making; aligning management incentives to company values and culture; informing expected standards and values to the employee base; and regularly assessing and measuring the company’s performance vis-à-vis its standards.

Human Resources, Internal Audit, Legal, Compliance and Risk functions, as well as line managers, should be sufficiently resourced and empowered to ensure values are integrated across an organization. Board directors, in turn, should challenge themselves on whether they receive the information they need when they need it to effectively oversee how values are being implemented, nurtured and upheld.

Strategy

Culture is also indelibly linked to strategy. Too often, companies do the opposite: they think about strategy separately from culture. However, higher performing boards take a holistic view, linking business objectives clearly to purpose, mission, values and culture.

Boards can play a valuable role in strategy-setting by reflecting on their involvement, the clarity and appropriateness of their roles, their opportunities for engagement with management in addition to establishing required parameters that define strategy. It is important to align on whether strategy is defined in relation to purpose and mission, or whether there are KPIs relating to cultural and behavioral expectations.

Further, directors can support their own oversight of strategy implementation by reflecting on their knowledge base on strategic topics and engaging with subject matter experts to enhance their education and experience.

Sustainability

Similarly, effective oversight of sustainability requires self-reflection for individual directors and boards as a whole. A key focus of directors today is how to ensure that considerations about sustainability are incorporated in a board’s thinking in every meeting, rather than being a tick-the-box exercise.

Directors of different backgrounds and functional expertise can consider what sustainability means from their points of view, such as in articulating and measuring performance, understanding risk, informing culture and behaviors, and setting industry and product trends.

Stakeholder Engagement

The foundation of the board’s oversight of culture, strategy and sustainability sets its ability to understand the environment in which the company and its stakeholders operate. A good board’s engagement is three-dimensional: containing engagement between directors, with management and wider stakeholders (including employees and customers).

Underpinning decisions made by the board is the legacy of each one in the context of long-term stakeholder impact. Taking this perspective avoids the potential pitfalls created by short-termism in decision-making. Boards naturally focus on shareholders, but they also have a responsibility to understand the perspectives and interests of a broader set of stakeholders.

Boards and management teams that master stakeholder engagement are able to further generate company value, mitigate risk, increase transparency and trust in the company and support its long-term sustainability. Directors can drive stakeholder engagement by creating a stakeholder map, reflecting key groups within a company’s ecosystem, considering ways to bring their voices into the boardroom (such as reviewing example customer experiences in meetings) and using tools for considering and measuring impact, such as having stakeholder champions.

Management Relations

Finally, an effective board is an engaged board. Engaged board members take a proactive and collaborative approach, that focusing on having a good relationship with management and working together to understand how they are generating value. Fostering constructive relationships with the executive team not only engenders trust but is also key to ensuring that directors are held accountable while building efficiency and effectiveness to a well-functioning board.

Good boards and good directors strive for continual improvement, maintain a deep understanding of where and how they add value and understand the ins-and-outs of their roles. Within this framework, different business perspectives and geographical and cultural backgrounds can only enhance the effectiveness of a board in maintaining a long-term focus on value-creation and staying true to a company’s purpose. They provide the backdrop to how directors are able to contribute. Ultimately, a smart, engaged board can be among the company’s most powerful assets.

For more leadership insights and educational resources, join the Nasdaq Center for Board Excellence—a convener of board and executive leaders dedicated to strengthening corporate governance in the boardroom and beyond. 

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