Boards of directors are tasked with navigating economic uncertainty, regulatory changes, corporate governance expectations, technological disruption, cybersecurity risks, environmental and social responsibility (ESG), as well as globalisation and geopolitical uncertainty.
These challenges are evolving at such a rate that they demand a fundamental re-set in how boards operate and directors fulfill their duties. In this article, Directors Australia General Manager – Advisory, Katie Simpson, explains why 2024 is the year of the ‘board re-set’.
Responding to the escalating challenges organisations face, significant developments in governance and the emergence of new laws and regulations now requires unprecedented attention from directors. The introduction of mandatory climate reporting for some companies, potentially as early as mid 2024, is arguably one of the most significant developments in corporate governance of the decade.
What’s also striking is the expanding scope of regulatory scrutiny, which is no longer limited to listed and government organisations. Small to medium-sized enterprises (SMEs) and not-for-profit (NFP) entities are now firmly within the crosshairs of regulators, including in areas such as climate change, cybersecurity and privacy.
What trends are we seeing?
Active shareholders and stakeholders are continuously increasing their expectations when it comes to both boards and directors. For example, concepts such as ESG, which have traditionally been a ‘nice to have’ are now seen as a ‘ticket to play’.
Concurrently, the regulatory environment is driving change for boards. In particular, new and emerging areas of compliance, risk and opportunity surround concepts such as AI, the positive duty of care on directors and employers in various facets of workplace safety, as well as International Sustainability Standards Board climate change reporting.
These factors all mean increasing liability for directors and officers. The consequences of which require:
- new and responsive approaches to the performance of key board functions
- greater focus on board composition aligned to contemporary environmental factors and organisational strategy, and
- emphasis on board and director commitment and continual learning.
We can also expect directors to continue to take a more substantial approach to due diligence before taking on a board role, and ensure that their remuneration is commensurate with the personal risk and time commitment involved.
Ready. Set. Reset!
Incremental add-ons to the board’s agenda are not sufficient to keep up with the rapid changes facing organisations. Instead, 2024 needs to be the year of the board re-set for both individual directors and boards as a collective.
Board re-set
Areas to re-set for a board include the performance of board functions, board composition, board processes, governance structure and the board’s relationship with management.
Questions to address as part of a board re-set include:
- What are the principles on which your board will operate in 2024?
- What are the board’s focus areas for the year?
- How can the board best structure itself to achieve this?
- Has the board got the right skills, experience and diversity around the table to perform the board’s functions?
- What is the desired relationship with management?
Director re-set
The onus is also on individual directors to re-set for broader board changes to occur. As such, this re-set will require greater diligence and continual learning at an individual level. Questions for directors include:
- What contributions will you make to the board this year?
- What are your expectations of your peer directors?
- What are your key areas for development?
