Boards, investors, regulators, and other stakeholders are increasingly focused on the alignment of board composition – particularly director expertise and diversity – with the company’s strategy.
Indeed, the increased level of investor engagement on this issue points to the central challenge with board composition: Having directors with experience in key functional areas critical to the business while also having deep industry experience and an understanding of the company’s strategy and the risks to the strategy. It is important to recognize that many boards will not have “experts” in all the functional areas such as cybersecurity, climate, talent, etc., and may need to engage outside experts.
Developing and maintaining a high-performing board that adds value requires a proactive approach to board-building and diversity – of skills, experience, thinking, gender, ethnicity and social background. While determining the company’s current and future needs is the starting point for board composition, there is a broad range of board composition issues that require board focus and leadership – including succession planning for directors as well as board leaders (the chair and committee chairs), director recruitment, director tenure, diversity, board and individual director evaluations, and removal of underperforming directors.
Board composition, diversity, and renewal should remain a key area of board focus in 2023, as a topic for communications with the company’s institutional investors and other stakeholders, enhanced disclosure in the Annual Report and Accounts, and most fundamentally, positioning the board strategically for the future.