This newsletter’s Table of Contents is as follows
- To stay in the game, directors need to rewire corporate missions and bring new faces to the table
- Common boardroom biases: four dynamics that commonly affect the boardroom
- Directors See ‘No End in Sight’ To Current Cybersecurity Risk (#1 Risk) and Talent Challenges
- From next-generation to now: Digital assets – On the board’s agenda
1. To stay in the game, directors need to rewire corporate missions and bring new faces to the table
In March, the UK Institute of Directors stated it was:
no longer tenable for British directors to be involved in governance roles in the Russian economy.
It called on them to do their “moral duty” and resign over the invasion of Ukraine.
In a poll of its members and wider community, 86% supported the view that all British directors should now resign their Russian board mandates. Many answered the call and relinquished their well-paid positions in Russian companies, but some chose to stay put, risking public opprobrium and legal action.
Larry Fink, US billionaire and chairman and CEO of the investment company BlackRock asked CEOs in his now-familiar annual letter this year if they wanted to be a dodo or a phoenix. He stated categorically that stakeholder capitalism
is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.
It is clear that to respond to this new challenge, board directors need to pay full attention to the state of society and the planet for the simple reason these are two vital elements of their operating space. If our climate and nature can’t thrive, nor can business. As many an activist and sustainability thought-leader has put it “you can’t do business on a dead planet”.
Hence, resetting the mission of a company so that profitability is a means to an end – the organization’s social purpose – and not an end in itself is essential.
However, age continues to be a blind spot. A 2018 survey by the consultancy firm PricewaterhouseCoopers showed that the average age of board directors in top US-listed companies was 63 and with just 6% of directors 50 or younger.
Younger generations are looking down the barrel of an increasingly volatile world where their futures are at stake. Without a doubt they must have representation at the table to challenge existing narratives and accelerate understanding and action.
2.Common boardroom biases: four dynamics that commonly affect the boardroom
No boardroom has a perfect culture. Derailed discussions, dismissed opinions, side conversations, and dominating personalities pop up in every boardroom. Each director brings his or her own habits, preferences, past experiences, and individual biases. These all impact the board’s culture and decision-making. Boards can’t achieve a truly strong board culture without taking these dynamics into account.
Four dynamics that commonly affect the boardroom:
Authority bias
The boardroom needs experts. Directors are, of course, recruited for their skill sets and expertise. But in some cases, boards may rely too much on one director’s experience or opinion. They can become too influenced by that opinion, dismissing what others have to say, or abdicating responsibility. Directors who are seen as an expert in one area might not contribute much to other discussions.
Groupthink
While consensus-building is important, boards may be too inclined to seek harmony or conformity. This can lead to groupthink, where dissenting views are not welcomed or entertained. In fact, while most boards work to solicit a range of views and come to a consensus on key issues, 36% of directors say it is difficult to voice a dissenting view on at least one topic in the boardroom according to PwCs 2020 Annual Corporate Directors Survey. This can point to dysfunctional decision-making as the board members avoid making waves. In fact, the most common reason that directors cite for stifled dissent on their boards is the desire to maintain collegiality among their peers.
Status quo bias
Boards, too, often prefer a set of established norms, and value that which is familiar. They may overvalue what they know and be reluctant to pursue initiatives involving substantial change, simply because it brings too many risks of the unknown. Boards may also be reluctant to embrace new strategies and ideas. While individually they may be creative thinkers, as a group they may be more likely to want to stick with the status quo. This can also lead to boards and companies under-investing in long-term projects like research and development, which may not lead to returns for some time.
Confirmation bias
Confirmation bias can lead to overconfidence in the outcome that directors are hoping for. If the company has had success in the past, the board may expect that success will continue, and overvalue the evidence that supports it. The board members that were strongly in favor of a project, or a new hire, or a new strategy, can find glimmers of positivity in almost any report from management. But confirmation bias isn’t always about overconfidence—it can also confirm a negative view. The director who was against the project from the start may, in the same report, see only the bad news.
Board dynamics won’t change unless directors are willing to take a hard look at the biases and practices on their own boards. Use these insights into behavioral psychology to see your board interactions through a new lens. And once you’ve identified some potential issues, apply the tools here to help bring about change.
3. Directors See ‘No End in Sight’ To Current Cybersecurity Risk (#1 Risk) and Talent Challenges
Over a month after the invasion of Ukraine, directors are growing increasingly concerned about the long-term effects of a war in Europe. Inflation, cybersecurity and supply chains were already issues before the war, but now, directors are concerned about how bad it may get—and for how long—before it gets better. More than 70 percent say they see “no end in sight” to the current talent and cybersecurity risk issues.
In a poll of 143 public company board members, surveyed March 21-25 as part of our Director Confidence Index, 56 percent said cybersecurity concerns are their #1 risk concern—and 39 percent also expect significant consequences on their supply chains.
These challenges are reflected in the Director Confidence Index, where directors are asked to rate their outlook on the business environment 12 months out and their confidence in the current conditions. Directors’ ratings fell to an all-time low this month.
Not only has the war in Ukraine intensified existing challenges, but directors also anticipate many of those issues are here to stay. Fully three-quarters of directors whose cybersecurity concerns have increased since the invasion of Ukraine say they see “no end in sight” to the issue, compared to only 12 percent who expect it to be resolved within 1-2 years. No directors forecast cybersecurity risks to diminish in the near term (<6 months).
Seventy-one percent also expect talent shortages to remain a problem for the foreseeable future, and 50 percent anticipate supply chain disruptions to continue for another year or two.
4. From next-generation to now: Digital assets - On the board’s agenda
Digital assets—including cryptocurrencies, stablecoins, tokens, and non-fungible tokens (NFTs)—are items of value that exist only in digital form. Using cryptographic technology, digital assets are secured, exchanged, and verified in decentralized digital ledgers.
Cryptocurrencies roughly quadrupled in value from the end of 2020 to late 2021, when the market was worth more than $3 trillion. In early April 2022, market capitalization for the thousands of cryptocurrencies tracked by CoinGecko was valued at $2.26 trillion. Thousands of major companies have begun accepting cryptocurrencies as payments and are using crypto for a variety of investment, operational, and transactional purposes.
According to Deloitte’s 2021 Global Blockchain Survey, leaders at financial services institutions globally regard digital assets and blockchain technologies as a strategic priority. Nearly 80% of survey respondents said digital assets will be very or somewhat important to their respective industries in the coming two years. More than three-quarters of respondents (76%) said they believe digital assets will serve as a strong alternative to or replacement for fiat currencies in the next five to 10 years.
A strategy that involves movement into cryptocurrencies and other digital assets requires a strong command of the underlying technology. While blockchain began as a cryptocurrency payment platform, it has evolved to much broader commercial uses.
Blockchain, or DLT, enables digital assets to be traced and transacted in near real-time while producing an immutable record of activity. The technology is rapidly gaining acceptance for a wide variety of uses such as automating contracts, tracing goods in a supply chain, automating insurance claims, centralizing patient medical records, and many more.
Given their duty to oversee strategy and risk, boards have a responsibility to understand this dynamic new market to grasp the opportunities and risks that are swiftly evolving for the companies they oversee.
