Key characteristics of the effective board in 2024

Published
Aug. 6, 2024
Key characteristics of the effective board in 2024
In this blog from People Executive, we delve into the boardroom with the assumption that the composition and challenges of the boardroom have never been more present or critical to the success or failure of companies. This emphasizes the value of recruiting, challenging, and "hiring" board members on par with executive recruitment to avoid "Tordenskjold's soldiers."

The characteristics of an effective board in 2024

The role and importance of the board for successful companies have never been more crucial. This applies to both the strategic development of the company and to top management, which now more than ever requires qualified sparring and input in response to the increasing volatility in the world around us. Just consider the many challenges management has faced over the past 5 years alone – COVID-19, inflation, interest rate hikes, war in Europe, energy crisis, climate issues, ESG agenda, and much more. Successful companies react and execute in time.

The roles of boards and top management are therefore changing. The demands for individual members' skills and diversity are clear. Hence, the right composition of both the boardroom and top management is of paramount importance for success or failure.

The optimal board composition is not one size fits all but must naturally be tailored to each company, its unique context, market, and environment. Nevertheless, some characteristics emerge that seem to be recurring in the companies that have navigated successfully through the turbulent waters of recent years – and they all challenge the original tendency towards "Tordenskjold's soldiers" in Danish boards.

Our goal is to highlight certain elements and provoke a significant debate about the optimal composition of boards, what characterizes it, and the threats it faces.
 

Diversity

The optimal composition of a board is characterized by a diversity of experiences and skills. It's not only important to have members with strong business backgrounds, but also those with specialized expertise in areas such as technology, digitalization, legal matters, finance, marketing, etc. This diversity ensures that the board can address a wide range of challenges.
Diversity and inclusion are not just internal matters; they are also important for the company's image and social responsibility. Companies that embrace diversity on their boards send a clear message about their commitment to promote equal opportunities and making a positive impact on society. Companies that prioritize diversity on their boards position themselves for sustainable growth and future success.

Global Perspective and International Experience

In an increasingly globalized world, having a global perspective is crucial for the board. Members with international experience bring not only a broader view of global market conditions but also a network and an understanding of cultural differences that are essential for the company's success worldwide. Therefore, both international experience and other cultural and ethnic backgrounds are strengths in the boardroom of the future.

Industry Expertise and Contextual Understanding

An optimal board composition includes members with deep insights into the company's specific industry and market. Having individuals who understand the unique challenges and opportunities facing the company is crucial for making optimal decisions and developing strategies tailored to the industry's dynamics. The uncertainty in the world around us in recent years calls for decisiveness, action, and executional speed.

Strategic Thinking and Innovation

The optimal board is not only adept at handling daily operational challenges but also capable of thinking strategically and innovatively. Having members who can look beyond the current business environment and identify new opportunities and threats is crucial for ensuring long-term success. As long as there is a willingness for execution and speed.

Management Experience versus Technical Expertise – or Both

Board members should not only possess strong management skills. With the rapid development in technology, digitization, and especially the need for innovation to ensure the company's future relevance and competitiveness, the composition of the board calls for technical niche insight, expertise, and experience in particular. This should open doors for the 'nerds' in the most positive and respected sense of the word.

Uncertainty is the New Constant and the Boardroom's Greatest Challenge

In today's complex business world, boards face a myriad of challenges, but one stands out as particularly daunting - the ability to navigate through a sea of uncertainties. Technological advancements, shifting market conditions, globalized competition, and current societal and global crises have created a dynamic and unpredictable environment, testing boards' ability to make effective decisions and ensure the long-term success of companies.

Uncertainty has become the new constant in the business world, requiring a rethink of the board's role. Only by developing adaptive strategies and redefining approaches to both decision-making and composition can boards ensure that companies not only survive uncertain times but thrive and create value despite the uncertainties. With increased uncertainty in everything surrounding businesses, significant competitive parameters are being put under pressure. For example:

  1. Decision-making under pressure: Boards are often required to make critical decisions at a rapid pace to respond to sudden changes. This pressure can lead to decisions being made without complete information, increasing the risk of errors.

     
  2. Lack of long-term vision: Uncertainty can result in a cautious approach, where boards refrain from making long-term investments or strategic decisions for fear of unknown consequences.

     
  3. Organizational challenges: Attracting and retaining talented leaders and key employees can be challenging when uncertainty permeates the work environment, and the organization must adapt to frequent changes.

     
  4. Difficulty predicting market developments and trends: Boards face challenges in predicting market developments, competition, and consumer behavior, making it difficult to develop effective and proactive strategies.

The uncertainty challenges the traditional approach to strategic planning, which relies on long-term stability and predictability around us - and therefore requires constant attention and adaptability from board members now and in the future. But what could effective navigation tools be for the effective board?
 

Navigation tools for the effective board

To address the volatility and uncertainty surrounding the operating conditions of businesses today, some essential elements emerge that both top management and boards should consider in their crucial interaction. One crucial word is agility, which should be incorporated. For example:
 

Flexible strategy and a more adaptable strategic planning process that is regularly revised. The traditional 3-5 year plan is challenged and replaced by shorter strategic sprints, followed by plan adjustments.

Technology should be embraced and integrated, including advanced technologies such as artificial intelligence and data analysis. This can support boards in making more precise predictions and informed decisions, as well as serve as a catalyst for driving a more flexible strategy.

The board's own culture of adaptability is crucial for continuously being able to adjust, providing the leadership and thus the organization with some fixed landmarks for their ongoing execution in operations.

Agile risk management strategies, where risk management not only focuses on risk avoidance but especially on seizing opportunities in the unknown through deliberate risk-taking.

The board's primary task as a sparring partner for management should also be to involve the organization's stakeholders more broadly – for example, employees, customers, external advisors, and others. Through this, boards can gain a broader understanding of the organization's reality and make more informed decisions.

In summary, the fundamental perspective in this blog is that the role of boards is becoming increasingly relevant in supporting the development and growth of successful companies. In a world of increasing uncertainty, crises, and change, agility is called for. Agility in the composition of the board and, importantly, in their competencies. This underscores the value of selecting, challenging, and "hiring" board members on par with executive recruitment.
 

We are curious about YOUR experience. Do you have any input, comments, or nuances to add to the boardroom debate? Don't hesitate to engage...

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