How Australian boards may look in 2030

EY research suggests that current governance approaches on Australian boards may not be fit for purpose in 2030. There are some alternatives.

Australian boards are under pressure. A recent study by EY Global Centre for Board Matters found that directors face key challenges – a growing regulatory and legal burden; outdated modus operandi; skills gaps; and increasing emphasis on environmental, social and governance (ESG) issues. These factors, as well as the recent crisis of the COVID-19 pandemic, have put boards on the back foot, unable to respond at speed to more volatile conditions and, most worryingly, putting their organisations at unacceptable levels of risk.

Where and how board operating models may change

Key questions to help define your future operating model

Even as boards and their C-suites begin to recognise the need for change and adapt governance models, questions remain around exactly what the future board should look like. This article, puts forward some considerations but with a caveat; there is no one way forward for Australia’s boards. In a complex working world, different organisations will find different models suit their current reality and their future ambitions. But there are four steps that can help redefine the future operating model.

1. Establish what 'fit-for-future-purpose' means for your operating model

To do this, boards will need to look at three levels of purpose:

• the long-term, societal purpose of the organisation, and how they support it
• their mid-term priorities, based on the organisation’s three- to five-year strategy
• their view of their own responsibilities as a board – together and as individuals (the board’s raison d’être).

Questions for approaching purpose with purpose

2. Have an honest conversation about what kind of governance approach will best fit your 3Ps

Should you be shareholder- or stakeholder-centric? Looking outwards (to gather and make sense of relevant data) or inwards (to keep tight control)?

3. Decide with management who’s responsible for what and how to deal with the grey space in the middle

For your management team, that means establishing:

• which decision-making framework they’ll use (RAPID or RASCI)
• which decisions they’re responsible for and when to involve you
• which items they’ll merely inform the board about and which they’ll consult you on, co-develop with you or delegate up to you
• how deep into the detail of topics management should go – especially relating to risk and compliance

For you the board, it means deciding:

• what topics and decisions you should own
• which powers you’ll reserve
• when you’ll be involved, and 
• what you’ll delegate

4. Develop a plan for transforming your governance model gradually

The findings of the EY study revealed that the 'as is' is creating a frustrating vicious circle for boards. As one interviewee put it: “I feel the obligations are upon me to lead these businesses through transformation and that creates a circle you can never quite complete. You permanently feel that you're never quite delivering to the extent that you need to.”

Moving from this vicious circle to a virtuous loop will involve making a series of incremental changes – not transforming overnight. But it’s critical for boards to start questioning their own ingrained thinking. After all, it’s the “that’s just how we do things” mentality among boards and management that prevents organisations from becoming future-fit. For example, by keeping them focused on short-term results instead of long-term performance.)

As the name suggests, this model mixes classic and new board structures, as determined by the organisation’s purpose. Some variants also reflect its wider structure: for example, aligning committees to the business units that create value, and where the biggest risks sit. The model allows for inputs from other key stakeholder groups while keeping some traditional committees.

2. Hub and spoke

In this model, the board (or 'value council') is still the epicentre, but shares its workload more than in the hybrid structure. This means ideas emerge, and issues are solved, around the board as well as within it. Non-traditional committees also support the big value-creating parts of the businesses, while advisory groups support specific topics like ESG.

One interviewee gave this great example: “We just created a new committee, which is around technological transformation of the business and the platforms and has genuine subject matter experts on that. And suddenly the IT guy who's been in the cellar with no windows is actually being dragged up to explain how we renovate the wiring of our ancient old house, and how we do it fast.”

3. Networked

Here, the board sees itself not as an omniscient epicentre but as a steward responsible for monitoring and facilitating long-term value. Satellite structures act like listening posts, picking up stakeholder issues as they emerge and feeding them up to sense-making 'nodes'. In this model, the board shares responsibility with these nodes for deciding how to respond.

Ultimately, it’s a question of mindset, not models

As with everything we’ve discussed throughout this series, the above are just suggestions, not cut-and-dried solutions.

This is not a suggestion that only structures should change either. To be ready for what’s ahead, all six aspects of operating models will need revising.

But the big question isn’t about which model, process or skillset is right. It’s how boards choose to respond and that has less to do with how workable a given solution is and more to do with mindset and appetite for change.

So, if you see validity in any of these ideas, you can (and should) consider how to respond. But how can you start, and where?

1. We have a clear long-term purpose that informs our conversations on the board.
2. Our committees, advisory and other structures reflect our strategic priorities and purpose.
3. We have clear guidelines about the types of risk and compliance conversations we need to have with management, who covers what and at what level.
4. We’ve had a robust discussion about the balance between shareholder primacy and stakeholder interests.
5. We’re clear on whether we sit on shareholder primacy versus stakeholder capitalism and creating long-term value.
6. We’ve defined what long-term value means in both financial and non-financial terms.
7. Executive incentives are directly linked to performance metrics around creating long-term value.
8. We understand what capabilities we’ll need to prepare for volatility, complexity and uncertainty in the operating environment.
9. The board have started to discuss (or already have a point of view on) how AI can help with faster and better decision-making.

One more thought to leave you with

The research findings indicate that change isn’t only inevitable – it’s desirable. But that can be difficult to accept when you’re a product of a pre-existing, long-held governance system that for the most part has done the job well.

It can also be easy to reject alternative views on the basis of “Oh, that could never happen” or “It could only happen if X were changed”.

But through these articles, the intention is to challenge you to debate the governance systems you’re using. And if you only ask yourself one question, we’d suggest it’s this: “If we had a clean sheet of paper, given our purpose and strategy and the way things are going in our market/industry/regulatory environment, what would we design?”

The answer may surprise you – and reset your course towards 2030 and beyond.