Effective decision-making in the boardroom is crucial to successful corporate governance. Typically, discussions on decision-making focus on strategic planning, risk management and robust debate. However, recent BoardOutlook data suggests a growing emphasis on director preparedness as a marker for effective decision-making.
In 2023, 60% of respondents to a BoardOutlook board evaluation listed “all directors are prepared” as a strength of their board’s culture. While this figure may seem modest at first glance, it represents a significant rise from the 34% reported in 2020.
These findings hint at a potential link with broader socio-economic trends, such as the challenges of 2020 and ongoing global uncertainties. As businesses continue to face challenges, directors must be prepared to make difficult decisions.
What does being prepared look like?
An obvious answer is reading board papers but more important it’s being clear on the purpose of each paper, and the ‘ask’ of you as a board member. There are also a number of other components that underpin preparedness and result in good discussion and decision-making. These include:
- Awareness of what’s happening in the external environment
- Contributing to debate and challenge in board meetings
- Raising issues with the Chair
- Seeking further information from the CEO or executive team
- Testing thinking with fellow directors
The board vs management split
When reviewing the board response compared to the management response in relation to director preparedness, there is still an obvious upward trend, however management seems to select this as a strength less often than the board.
This suggests that there may be a misalignment in what the two cohorts view as prepared. As management teams work in the business everyday, their expectations regarding understanding the business and therefore being prepared are likely higher than that of the board who typically need to spread their attention across multiple companies.
A BoardOutlook client shared that while the board received their board papers a week in advance, most directors didn’t read them until a day or two before the board meeting. This was because there had historically been a number of changes or appendices issued very close to the meeting date. However, since identifying this issue they were able to take action to address it. The client has shared that papers are now more consistently distributed in full, and the board is taking the time to read, review and ask clarifying questions sooner.
This opportunity to realign post board evaluation could be a contributing factor to why director preparedness is trending upwards. A quote from our client: “You can’t make these changes happen until you have a catalyst for it, and the catalyst was doing this review.”
How is this trend reflected across different entity types?
All entity types within the BoardOutlook platform have shown a recovery from the covid-19 pandemic in director preparedness. Given the level of uncertainty and number of irregular crises meetings that were held during this period, this aligns with our expectations.
When looking more closely at the large cap cohort, we can see these organisations have seen a rapid rise since the pandemic when it comes to viewing director preparedness as a strength. However, what’s interesting is that not-for-profit (NFP) organisations are showing an inconsistent trend line, jumping from 22% in 2021, to 35% in 2022 and back down to 23% in 2023.
There are a number of reasons that could potentially explain the trends we’re seeing in preparation. For one, boards have seen higher scrutiny and bigger workloads in recent years, with overboarding a recurring topic in the UK, Australia and other markets.
Navigating a shifting landscape
The notable increase of respondents selecting “all directors are prepared” as a strength over the past three years suggests a shifting focus in boardroom priorities. This rings particularly true when we consider the shifting socio-economic landscape.
That being said, steps to foster better communication between the board and management teams should be taken. Not only will this help the two cohorts share less disparate views, it will support the board in its ability to make effective decisions.
This data was compiled from board evaluations completed within the BoardOutlook platform between 2020 and 2023. It collates responses from board members and management teams across APAC, the UK and the US.