One of the lessons we uncovered in our Lessons Learned From a Crisis research is that the COVID-19 crisis has sparked many organisations to consider how they can “play their part”. For the first time, organisations beyond the public and third sector are defining their purpose and commitment to society and connecting with stakeholders in powerful ways. This is a welcome change. One that regulators have been crying out for, for years.
S172 of the Companies Act requires directors to pay due regard to the long-term impact their decisions have on all stakeholders. Despite it being enshrined in law in 2006, many boards still pay it little regard. Last year, governance professionals seemed most concerned by the statement itself. What must this statement look like? How can Company Secretaries do it well? We felt this missed a trick. By focusing on the evidence, rather than fundamentally changing the process and mindsets, organisations were complying with the letter of the law, rather than the spirit. The regulator, however, is committed to enforcing the spirit, as well as the letter, of the act.
The crisis has kick-started a much-needed mindset shift within many boards, with stakeholders ascending in importance. We’ve seen the environment heal, concerns around suppliers, a ‘customer first’ mentality, colleagues feeling more connected and communities coming together. Whilst cash may have been King at the start of the crisis, boards now recognise these stakeholders are critical to their long-term survival. This shift demonstrates a commitment to the spirit of the law. For this mindset to stick and intention to become a sustainable reality, boards need to take action. So, what can you do?
- Take time to make time: define your priorities and create space on the board agenda for discussions surrounding stakeholders and long-term goals.
- Give your board high-quality, timely information that speaks to the concerns of all stakeholders.
1. Define your priorities
Too often agendas are driven by habit and convention, leaving little space for the conversations that boards want to be having. Strategy is often squeezed out by operational performance and governance dominates in heavily regulated industries. Even with the best of intentions, discussions of stakeholders are largely left to annual deep dives.
Use this time of change to take a step back and reset. During a crisis, there is a tendency to address what is right in front of us and not look beyond the next agenda. This lack of forward planning can be dangerous, and means you’re forever chasing your tail. Furthermore, 69% of boards say their priorities have changed as a result of COVID-19. By not taking a step back and reassessing where you are, and where you want to get, you risk squandering long-term opportunities.
Work with your Chair and CEO to determine the big questions you need to answer as a board over the next 12–18 months. What are the big decisions your board needs to take? What are the big items it needs to monitor? We call these priorities. In particular, think about the discussions you want to have about your customers, people, suppliers, environment, and the community. We recommend formulating your priorities as questions as this helps drive specificity and focus in the information and resultant meeting discussion. Instead of just ‘people engagement’, the question you might be grappling with is ‘How can we ensure our people remain engaged whilst working from home?’ or ‘Is our current induction process effective in a remote setting?’ The nature of the question will drive fundamentally different conversations, so take time to get it right.
Once you have identified the big questions, put those into your forward calendar first. This enshrines time for the most important conversations and puts your stakeholders first. You can then add the more routine updates and approvals in the gaps around the priorities.
When it comes to evidencing S172, you can demonstrate your long-term view, and the time spent discussing your stakeholders. To make this easy for you, the Board Intelligence Agenda Planner allows you to tag agenda items with the type of conversation and relevant stakeholder. This allows you to extract statistics on the amount of time you’ve spent in decision-making vs. monitoring mode, but also how long you reserved for conversations on each stakeholder.
2. Give your board high-quality information
There are two parts to this solution — an organisational dashboard and decision papers.
Too often, data in board packs focuses almost entirely on financial information, which is, at its essence, historical. This drives a backwards-looking conversation focused on the shareholder.
We recommend building an organisational dashboard which tells a holistic story of your strategy, performance (financial and non-financial), and governance. Think of it is as the apex of your management information. On a single page quantify answers to the most important questions to you as an organisation:
- How does this organisation create value?
- How do you retain your licence to operate?
- Why do your customers buy from you rather than your competitors?
- Why do your people choose to work for you?
- What is your purpose and are you fulfilling it?
The dashboard should sit alongside the CEO report, which draws out the insight from the numbers. Opening the pack in this way frames the information with a more balanced view of the concerns of all stakeholders, and a view to future performance.
When taking decisions, boards should choose the best course of action considering the implications in the long term and the impact on their stakeholders.
We often hear that despite information being too long, papers rarely cover these considerations in enough depth. However, we don’t blame management. Very few report authors have ever received training on how to write board reports, and even fewer have sat on a board. It’s difficult to know what to include and so the tendency can be to throw in the kitchen sink, thus missing the mark entirely.
To rewire behaviour and embed a new way of reporting, you need a few things. Firstly, authors need a clear brief outlining the key questions they need to unpack, and considerations they must address. Combining this with education, templates, self-assessment and board feedback will deliver lasting change, and make it quicker for management to produce decision papers that are concise, evidenced and address those S172 considerations.