During this unprecedented time, a credible board that balances providing support to management while challenging it to make the best decisions is a necessity. As there is no sufficient historical experience that management can readily draw upon that can help it navigate current conditions, the board’s capabilities would especially shine through during this challenging time.
At the University of the Philippines, student organizations relied on senior advisors to guide their major decisions. They choose their advisors by determining which members of the faculty best suit their mission, vision and goals. The same is true for companies, as the designated board members are usually made up of internal or external experts of the industry they are in, or are major shareholders or owners. Board members should represent the company as a whole, as well as the interests of shareholders. The major decisions to be made regarding the company falls on the board’s shoulders, which requires its utmost skills and expertise and thorough, well-informed judgement.
As the pandemic persists, further affecting the current business landscape, company management and boards are expected to stretch their skills in ways they didn’t before.
Over the past six months, Grant Thornton had dozens of conversations with corporate directors to help understand how the pandemic is influencing business leaders’ responsibilities when it comes to governance.
What caused the change?
The diversity and competition in the marketplace are challenging the traditional definition of the composition of an industry. This requires the management and boards to change. The following are the drivers of change that Grant Thornton determined, based on conversations with business leaders from different industries:
– 2020 has created even more pressure on management and directors, although before this year, there are already concerns raised on the rise of ESG (environmental, social and governance), shareholder primacy and developing technology. These concerns zoomed into the changes in the experience, priorities and diversity necessary for an effective and efficient board.
– The tasks assigned to the director is becoming more operationally demanding. As crises need to be solved, directors are expected to be even more engaged with their teams.
Constant communication and meetings with management must be scheduled in order to immediately formulate solutions to the latest issues. Compared to before, boards now prefer to hold weekly meetings in order to stay connected to management. This is done so that risks can be constantly identified, addressed and dealt with immediately.
– Another factor that caused boards to change is scrutiny on the board’s composition. The board members Grant Thornton has spoken to question the significance of experience in general management, finance or industry as key criteria when selecting board members. One director pointed out that there is already an abundance of knowledge of management and finance in a typical board across industries, raising the need to be more open in searching in new places for different kinds of talent.
How evolution can take place
Nowadays, “digital” has become synonymous with “transformation.” As technology advances by leaps and bounds, it is necessary for company boards to catch up with it. In Grant Thornton’s roundtables with directors, a common conclusion was determined: the issues businesses and boards are facing have not only exposed gaps in the business, but also gaps in the board. These gaps have already been noticed, but the events of 2020 have highlighted how these are widening.
The first gap is the board’s relationship with company management. On the topic of being heavily involved in the endeavors of their respective companies, governance was first seen to involve “nose in; fingers out” responsibilities. Directors have pointed out that this philosophy should remain unchanged, as the board should not go as far as to micromanage. Instead, it was concluded that the board should take the responsibility to dig deeper, especially during these turbulent times.
As for board composition, diversity is already being addressed by many business publications, but there is little action or solutions from companies. First, the availability of virtual platforms to recruit people from different parts of the globe can help companies practice diversity in gender, ethnicity and age. Second, many boards are already using external, advisory subcommittees with various skills to combat the challenge of an evolving board and improve their expertise. And last, boards are already requiring directors to get training in order to expand their knowledge.
In terms of board operations, boards are harvesting insights learned from the pandemic.
The norm has been leveraging subcommittees to address the workload and matters requiring specialized expertise, but the current landscape has determined the need for it even more. Shorter and more frequent board meetings are also being tested on whether they provide for newer topics to be included in agendas. With the many virtual platforms available that allow for collaboration, voting and breakout sessions, board meetings should become more efficient.
Governance in the future
The pandemic and ongoing social tensions in 2020 have drastically emphasized the evolution in board composition and operations that the digital wave has already exposed — from the collaboration between the board and management and who makes up the board to how the members choose to work and the ways and traditions of the past should allow for quicker and more experienced methodologies. Governance must continue to evolve simultaneously with the entity it governs.
Anton Ng is a partner of the Audit and Assurance Division of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory and outsourcing firms in the Philippines, with 24 partners and more than 900 staff members. We’d like to hear from you! Tweet us: @GrantThorntonPH, like us on Facebook: P&A Grant Thornton, and email your comments to firstname.lastname@example.org or email@example.com. For more information, visit www.grantthornton.com.ph.
As published in The Manila Times, dated 02 December 2020