This essay featured in the April 2023 edition of The Catalyst, The B Team's monthly newsletter. Learn more and subscribe to receive leadership insights, advocacy opportunities and conversations between business and civil society leaders exploring a better way of doing business for people and planet.
We are going through one of the greatest transitions in our lifetimes, and no business leader is immune to the changes, challenges and opportunities this transition brings. No C-suite nor corporate boardroom can ignore global inequality and rising geopolitical tensions. No company will be undisturbed by the cascading impacts of climate breakdown, nature loss and technological disruption.
Yet most corporate boardrooms seem tethered to an old paradigm, which dictates that the shareholder is the only stakeholder that matters and maximizing financial returns for short-term benefit is the ultimate purpose.
Shareholders matter a great deal, to be sure! They are company owners, and businesses cannot thrive without profit. You’ll find no argument from me here, but let’s remember: business functions within the bounds of society. Commercial activity thrives because the balance of nature permits it to thrive — as do the workers, customers and communities upon which business relies.
Today, a crisis of conformity is impeding the rise of future-fit board leadership. Boards are not moving quickly enough, nor acting boldly enough. The culture and composition of boardrooms, as well as the ideological underpinnings of corporate governance, too often hold fast to a 20th-century way of doing business. “Group-think is a very serious problem,” Kieran Moynihan, managing partner at Board Excellence, reminds us.
Our employees and customers — as well as young people and an ailing planet — have signaled that the status quo cannot stand. So, how do we usher in a new paradigm where boards become bold stewards of the future we need and our children deserve?
The future of boardrooms
Good corporate governance means thinking and planning for the long term. A future-fit board is one that follows a framework for decision making and accountability, ensuring the interests of all stakeholders are taken into consideration. Such boards measure the things that matter (beyond short-term financial performance) and are equipped to holistically assess risk and opportunity.
Boards must embrace their role as stewards of the next 10, 20, 100 years. To achieve this, a mindset shift is needed — one that prioritizes long-term value creation and strategies for mitigating future risk, while also seizing the abundant opportunities that emerge in this transition already underway.
I’d like to extend a few invitations to aspiring bold boards and board directors:
1. It’s time to be bold. Brave leadership in a broken system is not easy. Cautionary tales abound of CEOs and board directors trying to shift the paradigm to better serve all stakeholders: shareholders, employees, customers, suppliers, impacted communities, young people and Mother Earth. Some of our B Team leaders have wounds to show for their battles with shareholder primacy, yet they continue, boldly, to do what is needed to meet this moment.
Communities of courage are invaluable for inspiring bold action in ourselves and others. Such communities — built on a foundation of trust and shared values — can provide a supportive space for leaders to step outside their comfort zones, raise their ambition and affirm collective resolve.
What are you willing to risk to ensure the future fitness of your organization?
2. Demonstrate climate competency from the top. In late 2021, INSEAD Corporate Governance Centre and executive search firm Heidrick & Struggles conducted a global survey of over 300 corporate board directors from 43 countries. Three out of every four respondents said that “climate change is very or entirely important to the strategic success of their companies.” Worryingly, 43% said that their companies lack clear targets for emissions reduction (or did not know).
For companies committed to net-zero greenhouse gas emissions by 2050 or earlier, climate competency in the boardroom is mission critical. Companies must understand the risks and opportunities associated with climate change, then develop strategies to mitigate those risks and take advantage of opportunities. A board with climate competency is best positioned to reduce its carbon footprint while building climate resilience.
The B Team and Ceres co-authored a “Getting Climate Smart” primer for corporate directors five years ago; it remains a particularly useful resource to this day. Is your boardroom climate competent?
3. Close gender, racial and generational gaps. You can’t solve problems you can’t see, and let’s be real: Boardrooms remain conformist spaces. They often lack a diversity of lived experiences and exposure to the very real challenges facing life on Earth.
Everyone stands to benefit from a more inclusive, equitable world — especially business. A growing body of research affirms the direct link between diversity in leadership and improved business performance. Diverse leadership teams bring a variety of perspectives to the table, which leads to better decision-making and more innovation and creativity. According to a 2020 report by McKinsey & Company, companies with diverse leadership teams are 36% more likely to have above-average financial returns.
Progress on diversifying corporate boards has been “painfully slow,” revealed a 2021 analysis of Fortune 500 companies by Deloitte and the Alliance for Board Diversity. Encouragingly, a growing trend toward transparency and accountability is prompting more companies to set specific targets and goals when it comes to diversity and inclusion. To what extent does your boardroom tune into and reflect the diversity of your workforce and the communities you serve?
4. Build stakeholder trust. Stakeholder trust is the foundation of a company’s long-term success. In the Deloitte Global Boardroom Program’s most recent Frontier survey of 177 directors and C-suite executives across 30 countries, 95% of respondents affirmed that corporate boards “should play a key part in building and protecting stakeholder trust.” And they have good reason to believe so: A study by Harvard Business Review found that companies with high levels of trust among stakeholders perform better financially than those with lower levels of trust. These companies experience increased customer loyalty, higher employee engagement and a better reputation in the market.
Trust “opens up an opportunity for innovation and collaboration,” says Sandra Sucher, professor of management practice at Harvard Business School. “What could we do if people actually, really trusted us?”
Asking the right questions
To catalyze change within your boardroom, questions that prompt self-reflection are a powerful tool. The B Team suggests a series of questions in our New Leadership Playbook, which can support efforts to assess your company's journey and unlock greater ambition among board colleagues:
- How are you building climate competency into your board?
- How purposefully is your board and management team creating a diverse, equitable and inclusive workplace culture?
- In what ways does your board and management team promote, and personally adhere to, a culture of transparency and accountability?
- How are you embracing stakeholder governance? How are you taking stakeholders into account in your decision making?
- How well do you understand, measure and report the true environmental and social impacts of the business?
I’d also like to uplift two questions that emerged from Deloitte’s latest Frontier survey:
- What are your board’s responsibilities for earning trust with stakeholders, and how do these differ from or align with management responsibilities?
- What metrics is our organization using to measure stakeholder trust? What could we do to improve the quality and accuracy of these metrics?
Leading boldly and placing stakeholder engagement at the heart of corporate governance models is the right thing to do — and also the best way to drive shareholder value for the long term.