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From Where We Sit

Boards of the future: Steering organizations to thrive

Jessie Carpio

A combination of complex regulatory environments and dynamic, competitive markets means that the challenges firms need to hurdle to compete and flourish have arguably never been this daunting. According to Nick Jeffrey, director for public policy at Grant Thornton, “if Boards are not looking ahead, through the right lenses, the risk is they will only spot these issues when they are right in front of them—which may be too late.”

But are Boards looking far enough and moving quickly enough? “Boards of the future: steering organizations to thrive,” a Grant Thornton corporate governance report, uncovered these burning priorities for Boards and shareholders worldwide. This report, discussed in significant details below, drew insights from our International Business Report (IBR) as well as from data and interviews culled from Grant Thornton teams around the world.
Findings from the Grant Thornton US Governance, Risk and Compliance (GRC) Survey 2016 advised businesses to understand this complex and dynamic business landscape. It found that, on average, organizations spend 12 percent of their total revenue on governance, risk and compliance activity. In the Philippines, Boards, especially of listed companies, are being organized primarily around good corporate governance, with the involvement in corporate strategy gaining traction.

But regulation is far from the only issue causing the demands for Boards to change. Boards face challenges and opportunities at a potentially significant moment for the global economy when the world continues to globalize and interconnect. Research by the World Trade Organization reveals that economic growth is increasingly being driven by cross-border trade. The average share of exports and imports of goods and commercial services in world GDP have increased significantly from 20 percent in value terms in 1995 to 30 percent in 2014.

Elsewhere, a survey of nearly 400 US public company directors found that nearly half (48 percent) think economic uncertainty is one of the biggest challenges facing corporate boards in 2016.

Evidence suggests the vast majority of business leaders understand that more is needed to be done to predict threats and opportunities. This is vital when boards are trying to keep an eye not just on the road ahead, but preparing for what is coming round the bend. Research suggests that for a Board to broaden its peripheral vision, it needs greater diversity. Kellogg Institute has found that diverse groups outperform more homogeneous groups not necessarily because of the influx of new ideas, but because diversity triggered more careful information processing that is otherwise absent among homogeneous groups.

A common thread running through interviews with various Board members around the world was the need for the diversity of experiences; which is arguably harder to quantify than gender or ethnic diversity, but is critical in ensuring the circulation of thoughts and ideas. Diversity needs to be effective, not just diversity for diversity’s sake.

Also, the research found that business leaders recognize the importance of digital technology as it is driving transformation. As digital has become a core competency expected of every business, it also presents a complex set of opportunities and challenges.

But only a fourth of the businesses surveyed by the IBR said that digital expertise is an area which their board should increase its focus over the next decade. The GRC research highlights a ‘cyber gap’, where 60 percent of the firms surveyed said that cyber security is a significant risk to their business, yet just 46 percent admitted to effectively mitigating that risk.

Recognizing this threat, business leaders in some countries suggested appointing digital natives to their Board. If not in the Board, at least the Boards should call on their expertise. Some respondents also pointed out that digital natives would also need relevant corporate experience in other areas to justify their place in the Board.

Board members see an opportunity over the next decade to tackle the “baking” of digital skills into the business strategy and operations. That means all board members should be embracing digital and enhancing their digital know-how.

Aside from boosting diversity and embracing digital, business leaders recognize the need for a better signposting. Signposting can ensure boards are made up of the best people for the job by identifying and nurturing the best talents. The top three suggestions by business leaders for Boards include: identifying future executives earlier (34 percent), building a pipeline of talent from diverse backgrounds (33 percent), and diversifying recruitment channels (30 percent).

While compliance with laws and regulations must form part of the governance framework, diversity of thinking and digital competency will be the key for Boards to meet the challenges in the next ten years. Blending people with diverse backgrounds and experiences means bringing a broader range of views and ideas to the table to pre-empt and respond to issues. Boosting levels of digital competency will also enable organizations to meet the challenges and opportunities posed by a raft of innovation. But ultimately better signposting of the route to the top is critical if the right people with the right skills are to become the board members of the future.

Jessie Carpio is a Partner and Head of BPS/Outsourcing of P&A Grant Thornton and concurrently President of P&A Grant Thornton Outsourcing Inc., an entity wholly owned by P&A Grant Thornton. P&A Grant Thornton is one of the leading Audit, Tax, Advisory, and Outsourcing firm in the Philippines, with 21 Partners and over 700 staff members.

As published in The Manila Times, dated 26 October 2016