Viewed in Egon Zehnder
The article unveil the evolving landscape and challenges facing board directors today, emphasizing changes in their motivations, roles, and compensation. The authors highlight several key findings:
Motivation
Board directors are increasingly motivated by the desire to make a real impact on the boards they serve, shifting their focus from monetary rewards and prestige.
This change in motivation is driven by increased responsibilities, personal risks (both reputational and legal), and the emergence of a more diverse generation of board candidates.
Board directors are now accepting fewer board positions to fully commit themselves to a smaller portfolio of companies.
Motivations include giving back, meaningful end-of-career opportunities, making a societal impact, network and collaboration benefits, prestige, and opportunities for learning and growth.
Composition
The study suggests that boards will become smaller, with an optimal size of 8 to 9 members to ensure effective collaboration, content-driven discussions, and results-orientation.
It recommends strengthening committee work by increasing the number of committees and involving topic experts as advisors.
Increased compensation may be necessary to attract global talent, diverse leaders, and experts in high demand, especially those with transformational P&L leadership experience.
Committees
The authors highlight the importance of board committees, with audit, remuneration, and nomination committees being the most established.
Many companies have established ESG committees, reflecting the growing importance of environmental sustainability, CSR, DEI, and organizational health.
Some boards have combined committees to streamline governance and decision-making processes.
Time Commitment
The time commitment for board directors and chairs has increased significantly due to higher stakeholder expectations, regulatory transparency, and personal risk..
Chairs play a crucial role in orchestrating changes and ensuring that all board members are engaged and contributing at a high level.
Compensation
Board director compensation includes fixed board fees, leadership role compensation, committee fees, stock awards, and various perks.
There’s ongoing debate about paying board directors in LTI (long-term incentives) and linking compensation to long-term ESG performance.
Pay levels for board directors vary across sectors and regions, and boards are paying more attention to director pay to attract the right talent.
Future
The article suggests that boards should focus on continuous development and individual director evaluations to enhance effectiveness.
It emphasizes the need for boards to reflect on their composition, roles, and operations to adapt to the changing landscape.
Take-ways
This unique study underscores the evolving nature of board commitment, the importance of recognizing the changing motivations of board directors, and the need for boards to adapt their governance practices, committee structures, and compensation to remain competitive and effective in the contemporary business environment.
It calls for a holistic approach to governance dynamics and recruitment strategies to navigate the challenges and embrace future opportunities.
