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Board and Leadership

The Boardroom of the Future: 4 Methods for Effective Succession Planning and Long-term Strategy

The Nasdaq Center for Board Excellence’s Boardroom of the Future Series discusses the changes that will affect the composition, mission and expectations of the boardroom in the near future to meet the needs of evolving stakeholders both inside and outside companies today.

Our first post covers the importance of succession planning and long-term strategy, with unique and relevant insights garnered from Nasdaq Center for Board Excellence Advisory Board Members: David Chun, CEO and Founder at Equilar; Roosevelt Giles, Board Direct of JUST Capital and Endpoint Ventures; Jennifer Robertson, Managing Director and Governance Practice Leader at Board Matters; and George Vlachos, International Director of Board Advisory Services at Stanton Chase.

Boards are entering a new era of change. With a shift toward stakeholder capitalism, heightened expectations of transparency and disclosure as well as new and evolving risks across businesses from climate change to cybersecurity, board responsibilities are rapidly expanding. According to board governance experts Roosevelt Giles, Jennifer Robertson, and George Vlachos, the new normal requires board composition to be more agile, adaptable and prepared to meet these growing challenges.

New board risks and responsibilities are scaling fast. Today, every business has a valuable technology and data infrastructure attached to their operations. According to Giles, 90% of the S&P 500’s market value has shifted from tangible to intangible assets. In contrast to tangible assets, such as real estate, financial accounts, manufacturing and inventory, and other physical goods, intangible assets are non-physical goods, like professional networks and connections, data and software, brands and licenses. But Giles suggested expertise in intangible asset oversight is lacking at the board level. He noted that less than 10% of board compositions have a digital mindset or digital skills.

“The risk to organizations today is not understanding that technology/data is a major driver of business value,” said Giles. “It’s difficult to govern what you don’t fully understand.  This shifting … from tangible to intangibles assets require urgent diverse skillsets,” he added. As technology and data become fundamental assets, Giles also noted that board directors should seek ongoing education on data and technology to make informed decisions and help their companies maintain a cutting-edge.

Robertson, meanwhile, found that the pandemic accelerated the need for an adaptable board with expansive technology expertise. “[The pandemic] required every director to … make decisions in the best interest of their organization in a perfect storm of health, financial, supply chain and workforce issues. [They] were required to consider at a rapid pace how to balance and prioritize these competing concepts and then try and figure out the best decision possible,” said Robertson.

In this ever-changing environment — from rapid tech disruption and pandemic risks to the shift from compliance to stakeholder governance — having the right team becomes especially important to maintaining a company’s success and growth in the long term.  

“You’ve got to have the right people in the right seat in order to deal with the risks that we have, in order to deal with the complexities of the business,” said Giles.  “If directors don’t engage in ongoing learning, a large percentage of board members might be unable to advise their companies in the near future,” he added.

Creating an experienced and dynamic team of diverse voices and members can help a company craft a long-term strategy that is better prepared to tackle the challenges of tomorrow. Meanwhile, implementing a resilient and robust succession plan is key to maintaining this success in the long-term.

Together, Robertson and Giles shared four ways boards can create effective succession planning and long-term strategy to provide oversight on these new and evolving risks.

Promote Generational Diversity

Both Robertson and Giles highlighted the need for generational diversity on boards. While older members have undeniable experience that help keep companies successful, younger voices in the boardroom can bring technological-savvy and forward-looking thinking ideas.

Fresh experiences can help boards better understand the current gaps in oversight and foresee new ones, creating a more well-rounded and resilient boardroom to tackle long-term strategy.

But one of the main prohibitors of generational diversity is the vicious cycle of requiring board experience to get any board seat, according to Robertson.

“I think it's quite unrealistic. I think that we as board directors, particularly those of us with lots of governance experience, ought to be open to the idea that we can bring in generational diversity,” said Robertson.

She advocates for boards to take on younger candidates with relevant expertise or perspective but with little or no governance experience, and for the board to set them up for success by mentoring the next generation of board members in governance.

“Governance can be a skill that can be learned on the job if there is a majority of the board who have and are willing to share that expertise. In my view, a younger board member can be supported to be successful in the governance role,” she noted.

Hire Advisory Board Members

A smooth succession plan requires new members to get a feel for the board, the company they represent and their responsibilities. The best way to ensure an easy transition for new members and increase risk oversight is by bringing in advisory board members with no voting power.

Bringing on advisory board members allows new faces to experience the same processes of a fiduciary board member, giving them essential board experience for an eventual fiduciary responsibility, while also filling in the knowledge and experience gaps the current board needs to fill.

“They have the skill set that is a deficit with the current board and they get to come to all the board meetings, committee meetings, etc. this gives the company board succession planning,” said Giles.

This method also works both ways, allowing older members who are ready to phase out of a fiduciary role into an advisory role. Retiring members now have a chance to be part of a board’s day-to-day proceedings while advising current and new members on pertinent decisions.

Stop Over-boarding

In a recent McKinsey survey, board directors reported spending more time on their work with fewer long-term results. Meanwhile, the Corporate Governance Institute notes that as boards expand their responsibilities, more time is required of members to be as effective.

One of the ways boards can ensure their members have ample time to commit to the success of their company is by cracking down on over-boarding. Over-boarding is the concept that the more boards a member sits on, the less their ability to serve these organizations effectively.

Insights Council member George Vlachos advocates for a point system that is popular in Europe and financial services companies. Each member gets four to five points with varying roles weighing differently:

  • CEO at a different company: 3 points
  • Chair position: 2 points
  • General board member: 1 point

Once a member reaches four to five points, the system suggests they should not sit on any more boards, believing that they are stretched too thin to give ample time to each of their board responsibilities. Additionally, over-boarding might pose a risk for the business as these concerns become widespread. It is important to proactively address over-boarding before regulators, proxy advisors, institutional and activist investors, as well as other stakeholders propose additional regulations.

Foster a Culture of Learning

In the same McKinsey survey, the firm recommends several ways to increase a board’s long-term impact. One way is for directors to seek information outside of the board reports from management. Of the highest-impact boards surveyed, 83% of respondents said their board members pursue insights and information beyond the management report.

Of the many traits that the Nasdaq Center for Board Excellence believes board directors should have—humility, candor, courage, among others—all the Insights Council members interviewed agreed that board members need to be lifelong learners.

Fostering a culture of learning in the boardroom encourages members to seek outside information, bring in new voices and add more insight to the important decisions that ensure a company’s success in the long term.

Good board members need to “learn, unlearn and be flexible and agile in their own thinking,” said Robertson.

As with many aspects of governance, there is no one-size-fits-all approach. Each company’s board must take a needs-based approach to determine the best structure to address challenges and priorities. However, boards that leverage their composition to tackle new and evolving responsibilities will be more successful in providing recommendations and driving positive change in the long term.

In the next article of this series, the Nasdaq Center for Board Excellence Insights Council takes a deeper look into the merits of continual education in the boardroom and what board members can do to foster learning in the room and become lifelong learners themselves.

For more leadership insights and educational resources, join the Nasdaq Center for Board Excellence—a convener of seasoned and emerging leaders dedicated to driving excellence and empowering connectivity in the boardroom and beyond. Click here to join our community.

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

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