Do you need a board?  

Your board may already be robust. Or re-building. Or questioning its focus and functionality. A private business has no regulatory obligation to have a board at all. Yet there are clear arguments for installing one. Not only does an independent and wise body support performance, exemplary governance secures the next step in a company’s life cycle. 

“A formal board managed by some independents can navigate and diffuse family politics and ensure the continued success of the business,” says this Amrop Board Member. “Control frameworks are useful, even if you’re not beholden to the public marketplace. You deploy some of the publicly-agreed systems within your own business.”  Another Amrop Partner agrees: “For a majority family-owned business preparing to go public, it’s good to start practicing these systems, even though you don’t have to. How will you communicate an equity story for investors if you don’t have your house in order?” 

Black swans are a fact of life 

“A board should never think they’ll have a steady state, says this Amrop Board Member. “We have just endured a global pandemic. We haven’t had such an event since the Great Recession, apart from the global financial crisis.” The past twenty-five years have delivered four black swans, and the coming twenty-five will herald four more, he predicts. “The pattern is a black swan every six to seven years. And they have changed the rules of the game.” Birdwatching is not an NED’s core job, he says. “Your average board member is there to do other things.” He invites Chairs to consider: “When a black swan arrives, who on your board will react constructively and calmly? 

From black birds to black boxes 

Unlike true black swans, AI has long been anticipated. More notable now is the exponential speed of its evolution, its vast potential and ethical dilemmas. “Everybody’s worried,” says one Amrop Partner. “CSOs don’t know how to approach this game changer.” The debate must strike at the root of what we allow AI to do. It must be a tool, not a decision-maker, she argues. The risk of corrupted, biased or infected data fueling AI decisions is a core concern. If a polluted system has decision-making power, the consequences will be monumental. “We need to set clear limits on AI. This is a corporate governance topic.”  

Is the picture universally grim? 

“The most progressive, usually tech based, boards have improved over five years. But not even 5% or 10% in financial services understand cybersecurity, for example,” says the Amrop Partner. Her colleagues agree. It is hard to set a clear course at the present time. “Given the magnitude and speed of change, examples of individual best practice are rare, says this Amrop Partner. “That’s the difficulty when we are hiring people. We want a good track record, but there are no examples.” Even a lateral search strategy cannot solve the problem: “there really has been nothing like AI.” 

Is AI paralyzing boards? “Absolutely,” says an Amrop Board Member. “I’ve just conducted a board evaluation for a FTSE business. They are taking a wait-and-see approach.” Another problem is the short shelf life of tech knowledge, surfaced by his recent assessment of a “really smart executive team.” Here, technology is being managed by the CEO and two NEDs: “Silicon Valley circa 2002-5. And it’s a totally different place today; they haven’t had boots on the ground for 10 to fifteen years.” He warns against being a tech bystander. “There’s nothing like a threat to force a board to think more seriously. It’s easy to say, let’s just hang back on AI and let everyone else make the mistakes. Doing that can seriously impact your business. So it forces examination.”  

The pendulum is swinging 

In the past decade business shifted from ‘shareholder primacy’ (financial returns at all costs) to the ‘holistic’ consideration of wider stakeholder groups. To earn operating legitimacy, the sustainability drive has been accelerating. But is the mood shifting? 

Boards are suffering from an ever-widening spectrum of topics. “Focus is being dissolved — boards don’t know where to look,” says this Amrop Board Member. Today’s pressures may re-ignite the drive for results across a dashboard, he says: “the broad portfolio of what results mean.” It needs to be clear, relevant, and respected. But narrowing the focus to financials “can be a poor driver of behavior.” Another Amrop Board Member sees exactly this trend. “ESG and DEI are moving in the opposite direction to six months ago.” Will this fundamentally alter board focus? “It’s an excuse, right? Hundreds are removing their DEI quotas.” But Amrop Partners agree that the business case for sustainability remains clear. “It’s central to strategy, risk, and reputation,” says one. Says another: “The pendulum will swing back half the other way. But it’s going to have to swing hard.” 

The roar of the crowd – activist shareholders 

The power of activist shareholders has grown over ten years. “Everybody has an agenda,” says one Amrop Board Member. Furthermore, digital platforms and transparency are increasing the access of interest groups to information. The pressure on CEO remuneration is mounting, too. “It’s a back door for activist shareholders to create dissonance,” says this Amrop Board Member. This is a serious error. “Periodically, put the handbrake on if something is very wrong. But it’s become a technique. And that’s a worrying pattern.” 

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Traditionally, Boards must perform two over-arching roles: Control the activities of the firm's management to protect shareholder wealth, and engage in service tasks, such as helping the firm create value (aligning shareholder and societal interests).¹ The core role is to blend external factors and internal controllables, as one Amrop Board Member put it. But all agree that boards must avoid over-controlling.  

“I define three top-end buckets, especially when I interview NEDs, governance, advisory, and supervisory,” says the Amrop Board Member. “Only in special circumstances do you supervise. I would advise any board member who prioritizes supervision to get an executive role.” Even ‘guiding’ is too directive, he suggests. ‘Partnering’ is a more modern, collaborative word. 

Could steering clear of that ‘supervisory bucket’ be one answer to board overload? This Amrop Partner thinks so. “We see in board evaluations that the top is off.” She signals insufficient time spent on strategy, a focus on operational details, versus true partnering. “There are several important factors to avoid getting into that space. Rather than experts, boards need people with the right competences and experience of board work.” The discussion circles back to the hub: “The Chair needs to set the tone and level of discussion, so that people can’t go too deeply into the details, as that will greatly impact the relationship between management and board.”  

The Chair is also the principal channel for supporting the CEO. But the step from executive to chair demands a profound shift in mindset: “Moving into the boardroom, it’s not about your personal ego anymore. What gets you to the CEO role is not what will drive you to be a successful Chair or NED. It’s about teamwork, how to inspire and challenge so that executives don’t leave the boardroom every time with ten pointless new tasks. How do we orchestrate that cooperation?”