News

The Future of Boards

 


AESC | August 7, 2017


The AESC's Executive Talent article, “The Future of Boards,” interviewed Russell Reynolds Associates Consultant Justus O'Brien about the evolution and future of the boardroom. He explained what is changing and why the firm launched the Board and CEO Advisory Group. The article is excerpted below.

Globally, boardrooms are evolving. Heightened scrutiny, empowered investors, rising competition, regulation and technological disruption have combined with the record pace and unpredictability of change to dramatically alter how boards are comprised and how they operate. This perfect storm is shaking up board composition, expanding and redefining what is expected of boards, and fundamentally changing what it means to be a director.

What is different? Justus O’Brien is Co-leader of Russell Reynolds’ Board and CEO Advisory Group and serves as a Managing Director in the New York office. “The role of the board and the demands on board members have evolved significantly, with more scrutiny, and more required of directors including much more engagement around strategy, investor engagement, and empowerment at the board level in long-term CEO succession planning.”

O’Brien said, “The investor community has had a role in all this—big, institutional investors who are advocating refreshment strategies, advocating for greater diversity, and demanding that boards strike a good balance between long-term requirements and short-term results. All of these pressures have led to a lot of change, and driven companies and boards to rethink how they’re doing.”

...

“Regulatory uncertainty and a lot of disruption and transformation are really affecting every industry,” O’Brien said. “For example, when clients want to add digital competency to the board, it’s often because their business has been disrupted and they need to have folks on the board who can think through those issues.”

...

The impact of these changes could be immensely positive. O’Brien said, “Businesses that are successful are constantly having to rethink their business model or at least check that their business model is right. I would anticipate that the board will have a much bigger role in engaging with management around strategy. It will be less of an arms-length approach and more engagement.”

...

High-performing boards know that diversity is a business imperative. O’Brien cites some simple facts about the impact of women on boards: “The effectiveness of boards greatly improved where there was greater gender diversity. Women serving on boards tended to be extremely well-prepared, showed a lot of EQ in the boardroom, and effectively altered the dynamic in a very positive way. So institutional investors are pressing the case for gender diversity.” O’Brien’s clients certainly are. “There is not one board that we are working with, where diversity is not a major goal.”

...

In O’Brien’s practice, “We are also seeing a demand for digital capability – people who can think in terms of how their businesses are being transformed by digital technology. It’s about someone who can ask the right questions, and make the right investment decisions.”

...

Shareholders globally are demanding transparency and accountability, and organizations are increasingly making commitments to evaluate the performance of boards and in many cases, individual directors.

... 

“It is standard practice in the UK, for example, that companies, boards engage in an effectiveness review every 3 years,” O’Brien said. “We are seeing more of that in the states in recent years, and part of that is being driven by the recognition that boards are being held accountable to a degree that they weren’t, before, and they have to make sure they are performing at the highest possible level. You have a lot of pressure from institutional investors, and that will be a growing pressure.”

...

If it affects the client, it affects the advisor. Firms and consultants who are involved in board work see their practices changing, as the priorities and needs of their clients change. “Five to ten years ago, if there was some big CEO transition, the company would bring in half a dozen folks to make a pitch, and somebody would win the mandate and go find new CEO,” O’Brien recalls. Today, “Because of the requirements around long-term CEO succession planning, boards have taken on thinking about succession – so we get called in 2, 3, or 4 years ahead.”

To meet the changing needs of board clients, Russell Reynolds “created a separate group called the Board and CEO Advisory Group.” O’Brien said, “We noticed that a lot of our work had expanded beyond conventional director search, and we reorganized ourselves to address that need.”

To read the full article, click here.

Sign up for our newsletter

Get the newsletter that prepares you for what's next with valuable insights across industries and geographies.
The Future of Boards