The Future of Boards: Agility, Insight, Impact

I recently read The Heidrick & Struggles "Board Monitor UK 2024" that highlights six pivotal shifts reshaping boardrooms, moving them beyond traditional fiduciary duties to a more proactive role. I found it extremely interesting and applicable to many of the partners we are serving at H-FARM Business School

The six pivotal shifts reshaping boardrooms

1. Evolving Stakeholder Influence:

Board agendas are increasingly influenced by a broader range of stakeholders, including the CEO and leadership team, workforce, regulators, and customers. Regulators are particularly influential in the UK and Europe. While shareholder scrutiny exists, its influence is not growing as rapidly as that of operational, commercial, and regulatory factors. Boards must proactively engage with these diverse influences.

2. Shifting Time Allocation:

Boards still dedicate nearly 60% of their time to traditional oversight (financial performance, risk, strategy) and leadership (CEO succession). However, there's a notable shift towards emerging issues, with AI and cybersecurity seeing the most significant increase in time spent. In the UK, sustainability is also a high priority. Despite its importance, CEO succession planning often receives insufficient attention, a concern for long-term stability.

3. Widening Risk Environment:

Boards face an intense risk landscape encompassing geopolitical uncertainty, AI, cybersecurity, and ESG concerns. UK boards are highly proactive in defining these risks and increasingly leverage external experts. Success in this environment demands wisdom, sound judgment, and a commitment to continuous learning, often requiring external specialized knowledge.

4. Increased Operational Involvement:

A majority of boards report increased operational involvement, sometimes blurring the line between oversight and management. CEOs often attribute this to board members' desire to learn, while directors cite their specialized knowledge. Notably, a quarter of directors indicate increased involvement due to a lack of trust in the executive team or perceived lack of CEO bandwidth. This highlights a need for clear roles and a high-trust board-management relationship.

5. Engaging with the Workforce:

Workers are exerting greater influence on board agendas (i noticed it boldy during my tenure at Ecolint). A significant majority of directors believe in engaging with employees beyond senior executives, with preferred methods including third-party surveys, town halls, and direct meetings with small groups without management present. While the UK mandates workforce representation, direct employee representatives on boards are less favored, suggesting a preference for indirect, unfiltered insights.

6. Diversity in the Boardroom:

The UK has made substantial progress in board gender diversity, exceeding the 40% target for FTSE 350 boards. Ethnic diversity is also improving. Beyond quotas, true diversity of thought and experience is crucial for enhancing collective intelligence, fostering innovation, and improving problem-solving. Boards should view diversity as a strategic asset, cultivating a psychologically safe environment where all voices are valued.

Table 1: Key Shifts in Board Agendas (from Heidrick & Struggles Board Monitor UK 2024)

The Overlooked Investment: Why Board Performance is Often Neglected

Investment in board selection, training, and performance is frequently overlooked, particularly by SMEs, treating it as an administrative burden rather than a strategic enabler.

Common Pitfalls in Board Governance:

1. Reactive vs. Proactive Recruitment: Often reactive, relying on networks rather than strategic skill needs, leading to ill-equipped or imbalanced boards.
2. Inadequate Continuous Learning: Boards struggle to keep pace with rapidly expanding expertise needs (AI, ESG), risking obsolete knowledge and suboptimal decision-making.
3. Neglected CEO and Board Succession Planning: Often low priority, leading to leadership instability and lack of strategic foresight.
4. Suboptimal Board Dynamics and Culture: Challenges like information asymmetry, conflicts, and lack of psychological safety undermine effectiveness, hindering open dialogue and collective intelligence.
5. Insufficient Diversity Beyond Quotas: Focus on demographic targets without integrating diverse thought limits comprehensive decision-making and risk mitigation.

Specific Challenges and Opportunities for SMEs:

SMEs face resource constraints and resistance to formal governance. However, establishing a board (even advisory) provides strategic guidance, ensures financial integrity, and attracts funding. Formalizing governance, even with limited resources, unlocks growth potential.

The Tangible Returns: Quantifying the Impact of High-Performing Boards

Strategic investment in high-performing boards yields tangible returns in financial performance, risk management, and strategic agility.

Driving Financial Performance:

• Increased Revenues and Profitability: Boards with top-quartile dynamics and processes report significantly higher financial outperformance (59% vs. 43% for bottom-quartile boards) in organic revenue growth, profitability, and market share. Board size, independence, and financial expertise also positively influence performance.
• Improved Margins: Effective board oversight, leading to improved operational efficiency and cost management, contributes to higher net profit margins.

Fortifying Risk Management:

• Reduced Risks and Enhanced Resilience: Effective board oversight and robust risk management practices enhance resilience. Board governance training strengthens risk and compliance capabilities, enabling objective threat evaluation and effective crisis response. Good AI governance, for instance, reduces legal and regulatory costs.
• Strategic Planning for Emerging Threats: Boards dedicate significant time to AI, cybersecurity, and geopolitical risks. Effective boards rapidly build or acquire expertise in these areas, establishing robust governance frameworks for responsible innovation and risk mitigation.

Elevating Strategic Planning and Innovation:

• Shaping Long-Term Strategy: Boards are critical in setting strategic goals and overseeing major corporate actions, actively shaping and course-correcting strategy. Well-defined corporate purpose positively influences firm goals and business models.
• Fostering Innovation: Board diversity, especially occupational diversity, drives innovation and comprehensive problem-solving. A diverse board, operating in a psychologically safe environment, is more capable of fostering creativity and adaptive thinking.

Table 2: Impact of Board Effectiveness on Business Performance Metrics

Building Boards for the Future: A Call to Action for European Corporations and SMEs

Companies must adopt a proactive, continuous investment model for their boards, recognizing them as dynamic assets.

Best Practices for Board Selection, Training, and Performance Evaluation:

1. Strategic Board Selection and Composition: Recruit based on skill gaps and future needs, ensuring diverse expertise. Define clear roles and responsibilities.
2. Continuous Board Training and Development: Cultivate a learning culture. Provide comprehensive orientation and ongoing education on industry trends, emerging risks (AI, ESG), and fiduciary duties through tailored programs.
3. Robust Performance Evaluation and Accountability: Implement regular self-assessments, peer reviews, and external evaluations. Define measurable success criteria and KPIs. Foster psychological safety and address succession planning proactively.

Table 3: Common Challenges and Best Practices in Board Governance

Tailored Recommendations for Large Enterprises and SMEs:

• For Large Corporations: Deepen stakeholder engagement, expand sources of expertise (advisory committees, external advisors), and consciously govern across boundaries.
• For SMEs: Prioritize formalizing governance early (legal standing, financial records, advisory boards). Leverage technology to streamline processes and engage stakeholders regularly. Focus on core competencies for smaller boards.

Driving Board Transformation

Strategically impactful boards are using tailor-made programs, practical tools and frameworks in areas such as:

• Strategic Board Selection: Competency-based recruitment and optimizing board composition.
• Advanced Risk Governance: Deep dives into AI, cybersecurity, geopolitical, and ESG risk oversight.
• Cultivating Board Dynamics: Fostering psychological safety, constructive challenge, and improved decision-making.
• Proactive Succession Planning: Developing robust CEO and board succession pipelines.
• Stakeholder Engagement Mastery: Effective methods for engaging diverse stakeholders.
• SME Board Development: Specialized modules for formalizing structures and attracting capital.

These programs translate into tangible business improvements: enhanced strategic capacity, improved decision-making, stronger governance and risk resilience, and ultimately, increased financial performance.

Institutions such as IMD , INSEAD , H-FARM Business School , Baltic Institute of Corporate Governance , Kellogg Executive Education offer high end bespoke programs that worth considering.

The Enduring Value of Board Excellence

Investing in high-performing boards is a strategic imperative for sustained competitive advantage in today's dynamic global economy. Boards are the ultimate stewards of organizational value, and their effectiveness directly correlates with a company's ability to navigate complexity, mitigate risks, drive innovation, and achieve superior financial results.

Companies, regardless of size, must recognize that board selection, continuous training, and rigorous performance management are fundamental to organizational health and growth. Overlooking these areas is a strategic vulnerability. By embracing a proactive and continuous approach to board development, organizations can unlock their full potential, ensuring resilience and seizing opportunities for transformative growth.

The future belongs to organizations led by boards that are knowledgeable, diverse, dynamic, collaborative, and committed to continuous learning.

As we consider the evolving landscape of corporate governance and the pursuit of truly high-performing boards, it's clear that the journey is continuous.

What do you believe are the most critical, often overlooked, elements that differentiate a good board from a truly exceptional one in today's dynamic global market?

How can organizations foster a culture that consistently encourages and supports such a level of governance excellence?

Share your insights and experiences below.

Alessandro Petrillo Pierluigi Fasano Sebastiano Di Luozzo, Ph.D. Fabio Tomassini Andrea Stella Stefano Zattarin Corrado Avesani Amol Dani Mario Ruta Andrea Vittadini Nicolo' Andreula Benedetti Massimiliano Raffaele D'Ambrosio Massimo R. Federico Barbieri Danilo Talamo Vanessa Miglioranza Giacomo Vettoretti Veronica Errera Maria-Laura Albini Matteo Bianchini Gianluca De Santis Marcello Matarrelli Matteo Molon Massimo Paloni Oscar Petrucci Leonardo Rubattu Lorenza Guerra Seràgnoli Pierluigi Turriziani Valerio Trombetta Alessandra Testa