TAKEAWAYS
Remember the old adage, “It’s not what you know, but who you know”? Those days are fading into the sunset of yesterday’s boardrooms. In today’s volatile, cut-throat and relentlessly innovative business environment, the old rules are being rewritten. Directors now face heightened accountability and a demand for diverse skill sets. A board lacking experts – whether in supply chains; artificial intelligence (AI); environment, social and governance (ESG) or diversity, equity and inclusion (DEI) – would risk rowing against the current of progress.
Across the globe, boards are actively seeking out directors who bring new skill sets and fresh perspectives to the table, and appointing first-time directors to boards has become a notable trend. Another compelling force ushering first-time directors into boardrooms is the quest for greater diversity, moving beyond the stereotype of the board as an old boys’ club. This shift is not just about fairness, it is about freshness, infusing new ideas and perspectives that mirror the global marketplace, and creating a more welcoming and dynamic environment that swiftly integrates and capitalises on the talents of new members.
In Singapore, however, the old guard still prevails, albeit amid growing awareness of the need for change. The numbers speak volumes. Of the 35 new seats filled on the boards of the largest publicly listed companies in 2022, only 31% went to first-timers, trailing behind Fortune 500 companies, S&P 500 firms and European counterparts.
There is certainly room for improvement. But hunting for new talent is no easy task. Few companies are keen to set term limits on directors, and a mere 6% of firms in the S&P 500 have taken this leap. Singapore has recently introduced a nine-year cap for independent directors, opening a small window for new faces.
Where boards are actively recruiting new directors or replacing directors, they face another problem; today’s prized skills – in fields such as ESG, technology or AI – are in high demand. Companies compete over a limited talent pool, leading to a merry-go-round of directorships, often called “interlocking boards” or “overboarding”. This does not just strain the directors, it can dilute their effectiveness and focus too.
Investors are starting to see the danger signs of directors being stretched too thin. The demands on corporate boards have ramped up to levels unseen before, and the task of filling board seats with suitable candidates is tougher than ever. It is time for companies to cast their nets into wider, more diverse waters. Many nominating committees are understandably nervous about sending rookies into the high-stakes game of board directorship. Afterall, a misstep can ripple through the boardroom, upsetting the balance and tarnishing reputations built over decades.
The prevailing wisdom has always been that wisdom itself comes with age and experience – a view not without merit. Yet, painting all first-time directors with the broad brush of inexperience misses the mark significantly. While first-time directors may lack specific boardroom experience, many are hardly novices in the business arena.
In 2022, a significant 37% of new directors in Singapore were former Chief Executive Officers (CEOs), with others having held roles like Chief Financial Officers (CFOs) (11%), and Chief Operating Officers (COOs) (17%). These are not sailors in untested waters but rather, seasoned navigators new to this particular sea. The ideal first-time directors come “battle-ready”, grounded yet visionary enough to see the big picture.
CEOs, CFOs, COOs, and Chief Revenue Officers’ mastery over the corporate gears and levers allows them to peer deep into the mechanics of the business, providing insights that are pivotal when steering companies. Particularly, CFOs are increasingly recognised as invaluable assets within corporate boards. In the age of information overload, their ability to sift through noise and focus on data that really matters becomes indispensable, allowing them to manage risk, optimise capital allocation and guide strategic business decisions. Moreover, as the business world pivots towards sustainability, CFOs are evolving into Chief Financial and Sustainability Officers (CFSOs), a new C-suite role combining responsibilities typically found in CFOs and Chief Sustainability Officer roles today.
CFSOs have honed their understanding of the company’s financial goals and market dynamics, enabling them to align board decisions with long-term objectives, thereby enhancing the board’s capability to drive value creation.
It is time we reframe our view of first-time directors not as boardroom rookies but as undercover veterans – armed with a suite of skills and experiences ready to be leveraged for innovative governance. It serves as a reminder that sometimes, the fresh perspectives needed do not only come from the young or the trendy, they come from the seasoned executives who are ready to apply their expertise in new ways.
In the evolving landscape of corporate governance, existing directors are not just leaders but mentors, actively sculpting the raw potential of new members. This mentorship extends beyond mere orientation to include ongoing advice, shared insights and opportunities to observe and participate in the decision-making processes. Through such collaborative interactions, new directors are not just integrated but empowered, equipped with the knowledge and confidence to contribute meaningfully to board deliberations.
Directorship training is vital not only for first-time directors or aspirants but also for C-suite executives, particularly CFOs and CSFOs. Courses such as the Board of Directors Masterclass Programme by the Institute of Singapore Chartered Accountants, enhanced by mentorship from seasoned directors, offer nuanced insights into board dynamics and interactions. Such knowledge benefits C-suite executives as it not only primes them to transition into directorship roles in the future but also improves their ability to serve their current boards.
In an era of relentless innovation and seismic disruptions, the challenge for boards to stay relevant and effective looms larger than ever. By blending the wisdom of board veterans with the innovative insights of first-time directors, the creation of a dream team fosters a board with strategic decision making that is both forward-thinking and rooted in proven success. This fusion of experience, fresh perspectives and diversity equips boards with the agility and balance essential for sailing the choppy waters of today’s business world, ensuring that companies not just survive but thrive.
Boon Swan Foo is an ISCA Distinguished Lifetime Member. An edited version of this article was first published in The Business Times on 7 May 2024.
© 2024 Institute of Singapore Chartered Accountants
