What skills do directors need to enhance boardroom performance?

The landscape of corporate governance is undergoing a profound transformation, and modern board directors must evolve with new skills to tackle emerging challenges

The landscape of corporate governance is undergoing a profound transformation, propelled by the imperatives of the digital age, and the workplace shifts brought on by the COVID-19 pandemic and geopolitics. Board directors now face an array of challenges that demand a more diverse and modern skill set. Traditional skills such as governance and financial literacy remain crucial, but there is an increasing need for expertise in digital technology, customer engagement, and human capital management as well.

Dr Juliet Bourke, a Professor of Practice in the School of Management & Governance at UNSW Business School, says that the pandemic fundamentally shifted the skills required by modern board directors. Dr Bourke, as Chair of the 30% Club Australia, recently collaborated with  Deloitte Australia to develop a new report, Green Shoots of Change, which profiles how five different boards have expanded their board composition to navigate an increasingly complex and uncertain environment.  

Reflecting on the genesis of the report, Dr Bourke said the pandemic served as an initial catalyst for reevaluating the skills and capabilities required in the boardroom, and resulted in a first report entitled Bold Moves in the Boardroom. By interviewing 31 non-executive directors and conducting focus groups with investors and executive search firms, the 30% Club Australia and Deloitte Australia unearthed some important insights. Firstly, “there are some skills and capabilities that are just foundational, every board director needs to happen, and they go to governance and financial literacy,” she said, and secondly “that boards have an abundance of those skills, but a dearth of skills relating to digital, customer and human capital”. Dr Bourke said that the Bold Moves report planted the seed for change, and two years later, "we wanted to know whether that seed has taken root”. In other words, were boards changing up their skill diversity to be more future fit?

One of those case studies featured in the Green Shoots of Change report involved non-executive director, Cheryl Hayman.

The shift from reactive to proactive board strategies

Ms Hayman is a Board Director for multiple ASX-listed companies, industry bodies and not-for-profit organisations including Beston Global Food Ltd, logistics and distribution company Silk Logistics Holdings Limited, Guide Dogs NSW/ACT and SaaS technology firm Ai-Media Technologies Ltd. She provided a personal account of the shifting dynamics within boardrooms. “It’s interesting that in the past it seems that Boards used to wait until they had a problem they needed to solve before considering non-traditional skills for the board roles,” said Ms Hayman.

This reactive approach, Ms Hayman suggested, is no longer tenable in today’s fast-paced business landscape. Instead, boards must adopt a proactive stance, anticipating future challenges and proactively addressing them. She highlighted the significant change in board recruitment, noting that organisations are now looking for directors with diverse skills that go beyond traditional governance and financial literacy as an expansion of the outcomes boards can deliver with varying perspectives.

The findings in Green Shoots of Change underscore the urgency of this proactive approach. “To be future fit, what this group of people were telling us was that you also needed to introduce into the board setting people with digital skills, digital and technology, customer marketing, human capital,” she explained. These new skill sets, Dr Bourke emphasises, are not merely desirable but indispensable for ensuring the long-term viability and success of organisations.

Key findings from the Green Shoots of Change report

The Green Shoots of Change report delineates four key findings that shed light on the current state and future trajectory of boardroom composition. Ms Hayman drew on her own experiences and provided insights into the practical implications of these findings. “It’s interesting for me,” she reflected, “because skills like human capital, marketing, digital, and so on, have a strong operational focus and boards need that at their board level.” As a UNSW Business School Alumna who graduated with a Bachelor of Commerce and Marketing, Ms Hayman underscored the critical role that marketing and human capital skills play in driving strategic decisions, which aligned with the broader trends highlighted in the report.

Dr Bourke elaborated on the report’s findings and observed that there is innovation in the boardroom, “but it’s at the fringes, it’s not at the heart of sort of ASX 100”. This indicates a cautious approach to integrating new skills. Dr Bourke also noted that those boards who had made a shift to appointing a non-traditional hire did so for an immediate strategic imperative and because they “believed that they were getting a competitive advantage”.

Now that these boards have done a “proof of concept”, Dr Bourke argues that it is likely more boards will start to make bold moves, especially as the Green Shoots of Change report found that the inclusion of diverse skill sets in the boardroom also delivers an unexpected benefit. According to Dr Bourke: “As a sort of indirect outcome, because a lot of the talent in areas like customer marketing and human capital are women, it was delivering a gender dividend as well.” This highlights the double impact of a focus on skill diversity in enhancing board performance and representation.

The role of human capital skills in modern boardrooms

John Mullen, the former chair of Telstra and incoming Chair for Qantas, emerged as a beacon of innovation and forward-thinking leadership in the Bold Moves in the Boardroom report. “He was one of the most enlightened people that we spoke to,” Dr Bourke recalled. Mr Mullen’s approach involved designating three positions where he was willing to take more measured risks in enhancing the board’s overall capability. This strategy of integrating diverse skill sets and perspectives proved beneficial, offering valuable insights and fostering a more dynamic boardroom environment.

In discussing the road ahead for boards, Ms Hayman struck a note of cautious optimism. “A lot of boards are still more not doing enough, thinking more broadly, but they’re doing more than they were,” she observed. While progress has been made, there is still ample room for improvement. Her high expectations and bias towards action underscore the imperative for continuous evolution and adaptation in corporate governance in the boardroom.

She pointed out that boards need to be more willing to challenge the status quo and embrace new ways of thinking to remain relevant and effective. She provided a specific example from her experience with Ai-Media, where she said the future fitness of the business required additional diversity of thinking around the boardroom, which reflects a growing recognition of the need for diverse perspectives to drive strategic decision-making at board level.

Embracing diversity and innovation in boardrooms

Dr Bourke also emphasised the importance of boardroom diversity in addressing complex issues, which often involve engagement with customers or employees. This underscores the need for board members who can navigate these intricate and often high-stakes situations. The ability to understand and respond to customer and employee interactions is becoming a critical component of effective board governance, especially in light of strengthening ESG requirements.   

Ms Hayman also touched on the evolving expectations of board members. “I think just opening board members’ minds to what people are bringing, as opposed to what is assumed that they’re bringing… I don’t know that we’re quite there yet,” she said. Recognising and valuing the unique contributions of each board member and their lived experiences, can lead to more innovative and effective governance, she explained.

The Green Shoots of Change report also addresses the slow adoption of human capital expertise in boardrooms. Dr Bourke found this trend concerning, noting that only 1 per cent of boards deliberately appoint directors with human capital skills. This is particularly troubling given the profound changes in workforce dynamics and expectations post-COVID. “Boards are not necessarily set up for success in dealing with that,” she warned. The lack of focus on human capital skills can leave boards ill-equipped to handle the evolving challenges related to workforce management and organisational culture as seen by the number of stories about boards that end up on the front page.

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Ms Hayman reflected on the need for diverse skills, which she said are a call to action for boards to rethink their composition and approach. “I think that the assumptions built into people’s backgrounds was very narrow, originally. The Green Shoots of Change report has been brilliant in challenging people to open their minds more,” she said. By expanding the range of skills and experiences represented in the boardroom, she said organisations can better navigate the complexities of the modern business environment.

Moving forward: continuous evolution and adaptation

The experiences and perspectives of industry leaders like Dr Bourke and Ms Hayman underscore the importance of a proactive, inclusive and forward-thinking approach to governance at the board level. They suggested that embracing diversity and fostering innovation are not merely beneficial but essential for modern boardrooms.

“It’s about getting people in the boardroom who can bring a different and complementary perspective,” Dr Bourke emphasised. This approach can lead to more robust decision-making processes and better outcomes for organisations, and she explained that Boards that are willing to take calculated risks and incorporate a wide range of skills are better positioned to thrive in an ever-changing business landscape.

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Ms Hayman observed that the journey towards a more inclusive and forward-thinking boardroom is ongoing. “We’re not quite there yet, but we are making progress, we are having the discussions and the proof is becoming evident by those moving fastest to ensure true board diversity for future fitness of their boards,” she said. This was reflected in the Green Shoots of Change report, which issued a call for continuous improvement and a reminder that the evolution of boardrooms is a gradual but necessary process. By remaining committed to this journey, boards can ensure they are well-equipped to face future challenges, improve corporate governance and risk management while capitalising on emerging opportunities.