korn ferry non executive directors

The “new normal” is that there is no “new normal”. The ability to deal with ambiguity, to be agile and resilient has quickly escalated to the top of the skills and characteristics required of chairs and non executive directors. Korn Ferry interviewed chairs of prominent organisations and other leaders on the challenges shaping board effectiveness, composition and the skills and experience of chairs and non-executive directors. They discussed what best equips boards and the companies they serve to manage an uncertain and potentially erratic future.

Since 2012, the risk focus of boards has increased substantially and with it, the spotlight on NEDs has increased, particularly the public profile of the chair. Four key issues that will be prevalent in 2025 were identified by most leaders interviewed — technology, ESG, regulation and diversity.

Technological forces will continue to have a major impact on how companies conduct business in the coming years, and chairs will ensure the NEDs on their boards have the right mix of experience and understand the challenges and opportunities that a greater reliance on and exposure to various aspects of technology will bring. The challenge is to anticipate, rather than react to the speed of change.

Colonial First State Investments and Redbubble chair Anne Ward FAICD cited a broad and deep understanding of technology and the opportunities that come from technology as an important quality for chairs and NEDs — now and in the lead-up to 2025. “Digital, machine learning and AI all present disruptive challenges, but also huge opportunities,” she said. “Often, there’s quite a small window to grasp an opportunity and boards need to be able to understand and meet the challenges of technology and, more importantly, use the often small window of time available to grab opportunities.”

That’s not to say that chairs of the future, or their fellow NEDs, need to have specialist backgrounds in technology. None of the chairs advocated for “digital directors” — preferring all directors understood operations through a digital lens.

“The thinking around diversity on boards needs to change to be more than gender. Age is becoming as important, depending on what board you’re involved with, and diversity in terms of background is also becoming more important.”– Pat O’Sullivan MAICD, chair Carsales.com

“Technology is the biggest global risk,” noted Robert Murray, chair of Metcash and Southern Cross Austereo. “I haven’t seen a single industry I’m involved in that hasn’t been fundamentally disrupted in the past five years. And it’s happening so fast for all of us because the growth of technology is exponential — the machines are inventing the machines.”

Environment, social and governance (ESG) reporting has been growing in prominence and will be more dominant in 2025. Social licence to operate, which is linked to ESG, requires deeper understanding by corporate Australia. Shareholder activism will also increase, and chairs will need to manage divergent shareholder interests and community expectations.

The chairs interviewed, when asked for their view on global challenges impacting risk, all identified environment as a major risk for now and in the future. To tackle climate change and other ESG issues, a long-term, outward-looking focus is required. As HESTA CEO Debby Blakey observed: “You can’t expect people to be tackling climate change if they are worried completely about next quarter’s performance rather than the 10-year horizon.”

Directors need to be in tune with community expectations of the companies they represent and their governance role. Australian business operates in a highly regulated environment, which will continue. The amount of compliance a board addresses increases most years, and this has in turn increased the workload of directors. Complexity of board work is expanding, and every skill required won’t be found among seven or eight directors. This may increase the need for specialist board advisers.

The chair needs to balance the needs of the business across different time frames and be able to make sound judgement on what is needed most and when. The chair of the future will be a skilled communicator and experienced at managing diverse shareholder interests. They will also understand the importance and influence of stakeholders who are not investors, but who, through their connection to the company — as employees, community, consumers or affected by decisions made by the company — deserve to be heard.

Chairs working deeper

While COVID-19 has temporarily drawn chairs into day-to-day decisions for the business, many noted that in recent years they have needed to work more deeply. For some, it was to better inform themselves in their board committee work by engaging directly with those responsible for a particular area. For others it was to support the CEO and the business by working as a mentor and sounding board to the leaders.

The tendency in recent times of the chair needing to be closer to business operations than previously does not mean they are becoming more operational. It relates more to the focus on non-financial risk, and clear lines of responsibility for the culture of the company, reaching up to board level.

“I’ve been a CEO and I’m conscious that I don’t want to be seen as a meddling chairperson, but the truth is that finding good contact points within the business, whether they be strategy days or meeting staff or clients who are important to the success of the company, does help,” says Hamish McLennan, chair of REA Group, Rugby Australia and HT&E.

“The biggest issue boards and management teams are going to face in 2025 is the flow of data — correct or incorrect — about their companies and their activities. How they weed through that data, what they respond to, their policies and approaches will lead to a profound breaking down of the corporate veil, leading to transparency — intended or not.” – David Clarke MAICD, chair Charter Hall Group

Strategic chair succession

The relationship between the chair and the CEO is the most important workplace partnership in any company, and boards work to limit a situation where both roles retire in the same year. Chair succession has not had the high profile of CEO succession, yet the role of the chair in the performance and stability of the company is of equal importance. During the past decade, the CEO succession process has become more planful, less so for the role of the chair. Some chairs are reluctant to move on and their board reluctant to have the conversation. Others stay on longer than intended because there is no obvious successor or an external event necessitates stability. There are, of course, long-term chairs presiding over high-performing boards, and companies with no appetite from board or investors for change.

There isn’t a set tenure for chairs, nor does the ASX recommend one. Some chairs expected tenure to be tightened over the next few years with the generally accepted 12 years moving to nine. Others were less fussed about the tenure and more about the ability of the chair to lead a strong board. “You always want to be building a board where you think you have one or two potential successors for chair from within,” says NAB chair Philip Chronican GAICD. “But it’s not completely uncommon to have chair succession from outside and you need to be open to that… it is about having the right set of skills for the company at the time.”

Necessary traits

Courage, collaboration, resilience and agility were the traits interviewees said were found in the most effective non-executive directors. These traits, when combined with a high EQ, diversity of ideas, pragmatism, a clear head and good listening skills, paint a picture of a NED who works to strengthen the team effectiveness of a board — but not to the detriment of their core role as custodians of governance.

Courage was mentioned often, particularly in relation to contesting accepted thinking on a board by being willing to put forward a different point of view. Not, as Carsales.com chair Pat O’Sullivan MAICD described, “just for the hell of having a devil’s advocate, but because they truly have a different perspective.”

Having the courage to ask tough questions is most valued when constructively applied. This view was shared by many chairs, who were dismissive of questions that add little, or just echo those previously asked by others. Collaborative, rather than individualistic, was considered one of the most important drivers of board effectiveness.

“A flexible and innovative mindset will become more important as will the need for an even more powerful risk radar... Boards will need to be even more vigilant around reputation risks and their duty as directors to protect the company’s reputation.” – Anne Ward FAICD, chair Colonial First State Investments

Much is made of the relationship between management and the board, but the relationship among board members is equally important. “NEDs need to challenge, but should always be constructive,” said Coca-Cola Amatil chair Ilana Atlas AO MAICD. “They have to put the interests of the company first, which may sound trite, but particularly in the current world where we’re talking about significant numbers of stakeholders, is actually quite challenging.”

Resilience has arguably never been as important as it has been this year, needing to be built into the business model and also to be a feature of leadership. Bank of Queensland chair Patrick Allaway noted that resilience is always needed on a board. “We’re in a world that changes very quickly and the impact of that change on businesses is very fast,” he said. “Whether it be this current crisis or continued business disruption, boards are going to need to be resilient.”

Agility is found in people who act and think quickly, who step in when needed. In an environment of constant change, complexity and ambiguity, learning agility has become mission-critical. “The future is likely to be very different to the past, there will be need for careful rethinking of strategy, together with an agile and continual review approach to strategy,” said Cochlear chair Rick Holliday-Smith FAICD.

Tim Nelson is CEO and Alexandra Goodfellow vice-chair of Korn Ferry Australasia. This is an edited extract from The Chair of the Future: Towards 2025. During March–June 2020, Korn Ferry conducted 28 interviews with chairs of ASX-listed companies, chairs, CEOs and CIOs of superannuation funds, and representatives of proxy adviser firms.