The pandemic has pushed organizations in every industry to embrace new, digital solutions. But while much has been written about the impact of the shift to remote work on employees, managers, and executives, there’s another critical group that’s been forced to transform itself overnight: board members. To what extent has the rapid digitalization associated with the pandemic extended to board operations? And to what extent will those changes persist as we move towards whatever the next new normal will be?
To explore these questions, we worked with our colleagues at professional services firm Tricor Group and the Financial Times Board Director Programme to conduct a broad survey of almost 800 global board directors. This survey identified both common trends in how boards have approached the challenges of the last year and illuminating differences between different countries and regions around the world.
For instance, we found that in general, board members for Asian companies reported more confidence in their organizations’ responses to the pandemic than North American and European directors did — likely due to the Asia Pacific region’s greater recent experience with similar public health emergencies. As Tencent board director Ian Stone explains, “An advantage we had in China was that we took the pandemic seriously. We had seen SARS and other similar crises before and were more ready to act quickly. This was facilitated by strong corporate governance enabling fast risk assessment and communication between the management and the board.”
But a closer look at the data reveals significant differences between individual countries: While just 50% of U.S. directors and 49% of UK directors reported feeling confident about how their boards had responded to the pandemic, there was major variance between different Asian countries: 71% of Singaporean and Japanese directors reported high confidence in their responses, compared to 68% in China, 61% in Thailand and Vietnam, and 56% in Australia and Malaysia.
In addition, while 80% of global directors said they believed digital transformation should be led at the board level rather than relegated to the IT department, boards in different regions differed dramatically in terms of follow-through. More than 90% of directors in Vietnam reported that their boards were actively exploring new digital tools, compared to 76-79% of directors in Thailand, Japan, and Malaysia; 67-70% of those in China and Singapore; and just 64% of those in the U.S.
These statistics serve as a useful reminder that trends are just that, and that no group should be regarded as monolithic in its approach to digitalization. Nevertheless, as boards begin to look towards a post-pandemic world, it can be helpful to consider the patterns that emerged from both the quantitative data and qualitative responses in our research. Specifically, we identified three key ways in which boards have struggled to adapt to a digital-first world:
Leveraging digital tools for board operations
Prior to the pandemic, just 5% of board meetings were conducted virtually. During the pandemic, that number has jumped up to 95% — and our research suggests that even after the pandemic, more than 50% of boards will pursue a hybrid meeting model. While there are certainly benefits to in-person meetings, data from Tricor Group suggests that going hybrid can significantly increase the efficiency of board meetings, resulting in meetings that are around 30% shorter with 20% higher attendance — so there’s good reason to think that a hybrid model for board meetings is here to stay.
“During the pandemic, we had board members stuck overseas in Singapore and the United Kingdom, and even before Covid-19, getting signatures for things like board resolutions was always a pain,” explained Jo Hayes, CEO of Habitat for Humanity Hong Kong. “Switching to digital was an absolute game changer. It reduced all the administrative costs associated with board meetings and tasks related to circulating board papers.”
However, despite the necessity of digital board governance tools in an increasingly hybrid world, our research found that more than half of global boards were still using general tools such as Google Meet, Zoom, or WeChat for virtual meetings, rather than systems specifically designed for digital board governance. Few boards we spoke to had updated their approaches to vital board-specific processes such as sharing secure governance documents, voting, or communicating confidential information. While our research demonstrated that there’s strong interest in leveraging digital tools to support board operations, there is clearly still a lot of room for improvement when it comes to implementation.
Addressing emerging cybersecurity risks
In addition to leveraging digital tools to boost the efficiency of board operations, bolstering cybersecurity is another key component of any board’s successful digital transformation. Boards that invest in operational tools without adequately addressing the increased cybersecurity threats that come along with those tools expose themselves and their companies to significant risk. While cybersecurity has long been on many boards’ radars, the combination of widespread distributed work and increasingly sophisticated attackers in the past year has expanded both opportunities for attacks and the impact of these attacks on business activities.
As a result, 83% of the board directors we surveyed identified cybersecurity as a top priority. Unfortunately, less than half reported that their boards had actually taken dedicated action to improve data security during the pandemic. For example, many directors reported that their boards had not been requesting cybersecurity risk and planning updates from their IT departments, conducting third-party cybersecurity audits, or involving themselves in their organizations’ cybersecurity threat response simulations. In fact, another recent survey found that just 33% of global directors reported investing in a system for virtual board communication, and more than half of board directors reported using personal emails rather than secure, encrypted digital communication tools.
As Tricor Group Chairman Gordon Watson explains, “Covid-19 has prompted the largest work-from-home movement ever. While many companies have been able to adapt to maintain day-to-day operational efficiency, organizations now face unprecedented vulnerability to cyberattacks that can threaten sensitive information and disrupt business. Because of this, board oversight on cybersecurity is more important today than ever before. While there’s no one-size-fits all approach, boards can mitigate these growing risks and instill a culture of security throughout the organization by creating a dedicated cybersecurity committee, establishing board-level oversight on cybersecurity issues, and holding regular security briefings.
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Building digital competency
Ultimately, successful digitalization is impossible without digital competency. As such, it was no surprise that the third common trend we identified — and likely a root cause of the shortcomings described above in both operational tools and cybersecurity — is a lack of digital savvy and training around the impact of emerging digital tools, technologies, and business models.
While not a new challenge, the pandemic has accelerated the need for these skills at the board level. As Caroline Raggett, Managing Director for a Hong Kong-based executive recruiting agency, explains, “The super-fast evolution of technology drives exponential complexity in understanding and dealing with this topic as a board. As a result, we have seen demand for digital or technology-oriented board directors more than double in the last five years.” Now more than ever, companies need board directors who are digitally competent and understand the new technologies that are impacting business decisions. And that means both recruiting the right directors, and investing in continuous education for existing directors.
Unfortunately, while 94% of surveyed directors said they felt they needed more training on new technology and governance best practices, just 58% reported receiving that training. Moreover, just 48% of global directors said they would consider employing independent, third-party expertise from corporate governance advisors, consultants, and cybersecurity experts to develop those critical digital governance competencies.
“As organizations look to rebound in a profoundly shifting business environment, there is no turnkey solution or off-the-shelf playbook for how boards should uphold strong corporate governance, assert successful oversight, and fulfill their fiduciary duties,” comments Michael Gourlay, board director and Chairman of the Asia division of insurance giant QBE. “Continuous board training is essential to equip our directors with new skills and up-to-date expertise in key areas such as stakeholder engagement, compliance, audits, diversity, sustainability, cybersecurity, and risk management.”
Interestingly, our research found that directors in countries where confidence levels were the highest (Japan, China, and Singapore) were more interested in engaging external expertise and advisors, suggesting a correlation between investment in training programs and a more confident crisis response. Of course, these programs do require some upfront investment, and it can be challenging to dedicate the necessary time and budget when an organization is already facing the myriad challenges associated with responding to a crisis. But now more than ever, boards can’t afford not to build these critical digital competencies — whether that’s through informal briefings, workshops, or formal advisory services.
The widespread shift to distributed work and the resulting rapid adoption of new digital solutions over the last year has accelerated the need for boards to think differently about digitalization. At the end of the day, it’s up to the board to make sure that an organization is fulfilling its mission and making a meaningful, lasting impact on the customers and communities it serves. That means investing in digital tools, following cybersecurity best practices, and developing the skills required to support a company in today’s digital-first world. As we start to see a light at the end of the pandemic tunnel, it’s up to board directors to ensure that part of the long-term, lasting legacy of this difficult year will be the successful digitalization of corporate governance.
Harvard Business Review