Reform Priorities in Boardroom: What Are Key Focus Areas for Boards in 2021

As we enter 2021, a year with series of uncertainties, many organizations have adjusted strategically and operationally to prepare for potential incidents and ensure viability while minimizing any impact on stakeholders.

Such hectic burden belongs to the Board and management to jointly think and find ways to lead the organization toward future growth.  This substantially changes the way Boards nowadays work as well as issues they emphasize that change along with fluid situations.  Considering data from last year and the future trend, the IOD sees five key areas for the Board to focus and/or take care of together with the management in 2021. 

1.     Greater focus on management’s responses to COVID-19 and significant impacts on the business.

In 2021, the Board will still have to stick with the pandemic situation and closely supervise the management on the matter.  The Board will have to consider how the organization should manage potential risks, whether it should proceed or put off invest plan, how to manage and maintain relationships with suppliers and customers, how to take care of employee’s safety, and how to prepare financial condition to cope with potential risks.  Meanwhile, the Board should also help the management think and urge them to look for opportunities during the crisis.  For instance, the company may apply new technologies by weighing long-term benefits of the organization, consider the possibility of digital transformation, and seek new business channels to strengthen the organization.

To steer the organization through the sea of uncertainties, the Board must not only emphasize the operational aspects like liquidity and staff management in terms of safety and morale but also the strategic aspect and the big picture including corporate direction, overall risks, and long-term security. 

2.     Greater attention to sustainability governance practices, purpose, and direction of the company.

Actually, the COVID-19 pandemic is merely a catalyst for the Board and management to jointly consider sustainability governance practices and seriously review the purpose and direction of the company.  The outbreak impacts on stakeholders are explicit.  Many companies that used to register solid earnings growth turned to loss while some even failed to survive.  This is an alarming sign for the Board and management that they cannot be nonchalant in considering sustainability governance practices and reviewing purpose and direction.  They should consider and review these matters on a yearly basis with or without unexpected incident.

Sustainability governance and corporate direction review are considered the same matter.  The Board must consider and identify sustainable issues and disruption issues or external factors that could affect business operations.  It should then review if the company can still manage the issues and what level should the issues be managed.  For example, the company should consider if it should manage the issues at the operational level by changing the way it operated or at strategic level by changing direction or at purpose or direction levels which require major overhaul in all aspects.  Such decision rests with the Board, which should consider together with the management, based on all available information from both the management and key stakeholders.

3.     Refocus on board diversity and the richness of boardroom dialogues and debate.

Board diversity has been talked about a lot but it may easily be overlooked in normal situation.  Many organizations only take this matter seriously when they need leaders to guide them through the challenges they are facing.  Very few companies consider this issue seriously in normal condition.  Most simply pick acquaintance or people with certain skillset to replace outgoing director. 

The pandemic clearly reflects the significance of Board composition because the Board must consider and make decision on crucial matters as well as provide long-term direction for the organization.  Regardless of the situation, the Board composition should be reviewed annually.   Corporate direction and strategy must be the core factors in recruiting Board member while future business trend must also be taken into account. 

To have directors with appropriate skills and experiences on board is not enough but the directors must also work well together.  Therefore, the Board should discuss and set clear work process such as number of meetings, agenda and issues to be discussed at the meeting, meeting method, and other important matters.  The Board should set a flexible framework for the work process and review annually to fix any flaw and develop the strength in order to enhance the effectiveness of the Board.

4.     Focus on corporate culture

Ongoing uncertainties clearly underline how the Board should recognize and prioritize corporate culture.  It ranges from urgent matters like building morale of employees to job security, remuneration, and ways to deal with stakeholders.   The Board must work together with management to seek the best resolutions for these matters and take into account the direction and viability of the organization.

In all, the Board and management must jointly consider the creation of Ethical Culture and Performance Culture and the two cultures cannot be separated.  An organization should have a culture that accommodate fair treatment of all stakeholders in accordance with business ethics both at normal time and in crisis.  Meanwhile, an organization should also drive culture that accommodate employees to strive for solid performance of the organization.  These are not easy to achieve and take a rather long time. Therefore, the Board should discuss these matters seriously.  They may be set as one agenda in Board meeting every year and should be continuously monitored.  Alternatively, a committee such as Corporate Governance Committee or Nomination and Compensation Committee may be assigned to screen the matters. 

5.     Evaluate and supervise risk management plan and business contingency plan

The risk oversight role of the Board intensifies when the company faces with an unexpected event that affects business operations.  Actually, the Board should regularly oversee risk management both under normal situation and uncertainties.  The risks can be divided into Enterprise Risks and Crisis Risks.

For Enterprise Risks, the Board should consider integrating the company’s strategy and operating plan into the risk management plan.  It should also take expectable external factors and potential new risks into account such as risk from violation of newly launched data privacy law or risk from computer data theft arising from greater application of technology in work operation etc. 

Regarding Crisis Risks, the Board should ensure the management create various scenarios with different magnitudes of impact to establish measures to manage both financial and non-financial impacts properly.  The Crisis Risks should be evaluated on a regular basis and they should be tested to ensure the company is well prepared in case the risks actually materialize.  The COVID-19 outbreak reiterates the significance of crisis risks which require serious consideration and oversight from the Board and management.

The key focus areas listed above clearly deserve attention from the Board.  Therefore, the roles of current Board are under larger expectation than before.  The Board must work more proactively and collaborate with the management on significant issues.  In 2021, the IOD then plans to upgrade the professionalism of directors so that the directors can become effective leaders or have a high level of board leadership.  This is the annual theme that the IOD will focus in the development and preparation of courses and other activities for its members.  The IOD is still convinced that the Board is an essential group of people that will create and lead the change in the organization to ensure sustainable growth. 

                                                                                          Tanakorn Pornratananukul
Assistant Vice President
Thai Institute of Directors Association (IOD)