A significant number of boards globally were not prepared for the tumultuous and lifechanging “Black Swan” event that hit 2020 in the form of the COVID-19 crisis, attendees at an AICD virtual event were told recently.
Many boards need to broaden their scope to prepare for Black Swan events because they “missed” the crisis and didn’t see it coming, event speaker Leonie Valentine, Managing Director Sales and Operations at Google Hong Kong, told the virtual audience for Future Trends for Global Boards, the first in a three-part AICD series.
“Do they need to think potentially about having something in the bag at a board level that really does look at Black Swan events in the future? Most certainly,” she said.
The virtual event threw the spotlight on challenges facing global boards and unveiled some major future trends. The event, which attracted 260 participants from all over the world, also questioned and cast doubt on whether our traditional notions of corporate governance are fit for purpose in such complex and ambiguous times.
A poll conducted during the virtual event showed that only 66% of participants felt they were “somewhat prepared” for the crisis.
“COVID-19 is unlike any other event or crisis that we've ever seen,” said Valentine. “It's very difficult for boards to prepare for a one in 100-year event.” So one of the things boards need to think about is the concept of having a mindset to deal with volatile, uncertain, chaotic and ambiguous events.
Hong Kong is now seven months into the crisis, with the first cases being diagnosed in January, and most boards underestimated the severity of the situation. “A lot of boards in and outside the Greater China region really thought this was like SARS,” she said. “They thought it was like the events of 2003, that it would be fairly well contained and under control from a regional perspective, and that it wouldn't potentially end up in a global pandemic. There were only a few people such as Bill Gates who were saying nervously that we think that this is much bigger.”
The two other speakers on the virtual event were Dr Jane Gunn, Partner in Charge of KPMG Australia's People & Change practice and Dr Richard Hames, founder and executive director of the Center for the Future.
At a global level, challenges and trends are numerous in the wake of the crisis, attendees were told. These include disruption to supply chains, an accelerated movement towards national self-sufficiency and a departure from multilateral organisations such as the World Health Organisation (WHO), a great deal of economic uncertainty across the world, a looming growth global recession, unemployment, a decline in consumer optimism, geopolitical tensions between the United States and China and the future of the South China Sea, and the impact on the nervous stock market.
Other trends discussed include the following:
- Digital transformation. “A lot of people are saying that there's been three years of digital transformation in less than three months… so a lot of organisations have had to pivot,” said Valentine.
- Direct to consumer businesses. A huge move towards direct to consumer businesses as people do much more within their homes and use more technology services such as broadband for entertainment at home.
- A rise in contactless service delivery. Delivering not just food but essential supplies such as pharmacy products to homes. “Now what we're looking for are services that can be contactless, so this is actually a massive trend.”
- Upgrading real estate. People are investing more in making their houses great places to work and live and will be thinking about upgrading.
- Faster decision-making. “We know you can make decisions, faster, and with less paperwork, so that’s been a really important aspect of what organisations do. There's a real desire to do that,” says Gunn.
- More frequent board meetings. Boards need to use real-time strategic intelligence. “From a practical perspective, how does a board get that real-time, strategic intelligence, especially when they might be meeting only a handful of times a year, often remotely via Skype?” asks Hames.
- More active role of the chair. Chairs need to give board members permission to find out more information about the business and accept that a deeper understanding of complexity is needed in governance terms.
- Greater national self-sufficiency. An acceleration of a movement towards national self-sufficiency.
- Disruption to supply chains
Valentine says she sits on two not-for-profit boards and one listed company in Australia. “We meet at least monthly, if not more regularly, and there are a lot of ad hoc meetings in between,” she said.
“If you are on a board, you ought to be questioning at this point in time how often they are meeting. I mean seriously, we’re in the middle of the crisis and if you're only meeting quarterly on your board, it's probably a board you want to get off right now, because they're not going to take the situation seriously.”
She says she has three “super-engaged chairs” on her three boards. The role of the chair is crucial now in terms of seeking information, and also in giving permission for board members to extract more detail if needed.
It is important during this period to use the expertise of board members to form subcommittees to go and find relevant information. “For example, go and work with the HR team, and look at how they actually coping at an employee level. Go and work with the finance team to see how much they have left in the tank, because there may be adjacent opportunities or M&A opportunities. And looking at innovation as a response to this particular crisis,” said Valentine.
More complex governance models needed
Most governance models on conventional boards and meetings were sub-optimal before the pandemic hit and relied on compliance and very narrow streams of information, says Hames. “These actually work against us when we're trying to understand what is going on.”
The focus of most boards is too narrow, he adds. “I'm pretty convinced that many boards have reached the threshold and their understanding of what's happening all around them, simply because their focus is too narrow.
“Clearly we need to understand in a complex situation a more comprehensive view of what is happening. And deeper levels of understanding are very, very important.”
We need to shift the balance away from compliance to planning and navigating in real time for board strategy, he adds.
New leadership styles
New leadership style have also emerged during the crisis, which has in some cases brought out the humanity in business leaders, says Gunn.
Some leaders have shifted from traditional leadership into “adaptive leadership” which better suits the complexity faced during the crisis period, she says.
“We're seeing leaders who are helping people navigate that ambiguity that's inherent in the situation, and practically, this shows up that there's some real empathy… this has absolutely brought humanity out in leaders. That's been a really important aspect of breaking down some of the hierarchical barriers, which we know is important. That's innovation critical as we come up on the other side.”
The next two sessions in this series of Future Trends for Global Boards will be: