From Larry Fink’s demands for performance that delivers for both investors and society, to the new Taskforces on Nature- and Inequality-Related Finance Disclosures, to mandatory climate disclosure requirements by stock exchanges, legislative changes and national guidance to enable purpose-driven companies, the signals are clear: the future of boards will not only encompass effective management of social and environmental risks and impacts, but also the leadership of organisations to ensure they are innovatively focused on creating long term value for society as well as investors. |
Internationally, there has been rapid progress over recent months to encode best practice governance: governance that has purpose at its core. As part of this trend, we see ongoing evolution of corporate governance codes and interpretations of fiduciary responsibility. These represent seismic shifts in how we think about organisations and the role of boards. What we are observing is nothing short of transformational.
A need for informed debate and greater rigour in understanding individual, organisational and systemic barriers to progress
In spite of this steady direction of travel, the purpose of business and the imperative for business action to secure social and environmental foundations remain contested by those who perceive that creation of shareholder value should remain the ultimate goal of a business, and that a direct focus on addressing society’s needs risks eroding business efficiency and – ultimately – financial value. There is a need for greater rigour and informed debate, which situates discussion of purpose and ESG factors within a wider focus on achieving thriving societies over the longer-term – along with thriving economies and businesses that serve them.
As well as a need for informed discourse, there is a need to provide organisations and their boards with insight and solutions to address the barriers they face as they work to align purpose and profit. At the level of individual directors, there are challenges relating to their expectations, competency, agency, diversity, and personal agendas and ambitions. Organisational challenges include misalignments between commercial, environmental, and social ambitions (with the achievement of the former often at the expense of the latter), as well as lack of meaningful integration of sustainability factors into how boards run themselves. Many businesses with a stated purpose aligned to society’s wellbeing often lack a clear roadmap to transform both the ‘hardware’ (metrics, incentives, policies, decision-tools) and ‘software’ (culture, narratives, capabilities, leadership behaviours) of the business to enable them to sustainably and profitably deliver on this ambition. Even progressive organisations with a competent and aligned board and appropriately structured organisation face significant systemic challenges; from demand for short term commercial performance even where this erodes long term value, to a lagging regulatory context, inadequate data and metrics and significant technology gaps. Swimming up-stream will be the norm until wholescale change is well underway.
Bridging the gap
We, like many others, believe that there has been inadequate attention paid to date to the barriers to board performance that is fit for the future. To achieve this, we need to understand the enabling conditions and approaches that are most likely to accelerate improved performance. Our global reach and perspective allow us to radically move forward on this vital agenda to assess the speed of change, internationally, and the tools boards can use to transform.
Research project between CISL and DLA Piper
A new, two-year collaboration between the University of Cambridge Institute for Sustainability Leadership (CISL) and DLA Piper seeks to bridge this gap, bringing increased insight and rigour to mapping barriers as well as to identifying the most promising solutions and enablers of progress. Combining a review of existing academic and practitioner research with consultations with board directors and key stakeholders in a range of jurisdictions.
The initiative will result in practical, evidence-based, internationally relevant insights and recommendations, designed to support boards and the business they lead, so that they can assess and navigate the multiplying risks and respond appropriately. It focuses broadly on the future of boards, considering how boards can lead the necessary transformation to align their purpose, commercial strategy and response to global challenges with the achievement of a thriving future for all.
The research has three main aims:
- to identify trends in board practice and the related legislative environment including drivers, likely trajectories and pace of change
- to evaluate whether these trends are likely to support or hinder boards aligning business success with a sustainable future
- to provide evidence-based and globally relevant practical recommendations for boards and those that support and/or enable their practice (for example, advisors or legislators).
The research draws from primary and secondary data to understand trends and uses a bespoke sustainability framework to understand whether or not these trends are likely to support or obstruct the alignment of business success with a sustainable future. A sustainable future is understood as one where everyone’s wellbeing is optimised which requires healthy social and environmental systems.
The research is being carried in two phases.
Phase 1, explored the evolving and emerging trends in board practices and capabilities, and the related legislative contexts. It is divided into four parts:
- Part 1: Future of Boards Foundation and Methodology sets out the context, rationale and theoretical underpinning for the study, as well as the research design
- Part 2: Future of Boards Legal and Regulatory Frameworks for Sustainability explores trends in both ‘hard’ law (legislation and case law) as well as ‘soft’ law (such as codes and guidelines), which relate to areas of broad sustainability concern. The comparative analysis provides insights into the legal context within which boards are currently operating, and are likely to operate, in the future, and enables us to evaluate which trends, that are aligned with a sustainable future.
- Part 3: Future of Boards Trends in board practice: Insights from our Initial Exploratory Research looks at trends in board practice, including those in response to this evolving legislative context and wider pressures to achieve sustainability outcomes. These three domains are:
- materiality, purpose, strategy and disclosure
- board membership, structure, individual capabilities and group dynamics, and
- stakeholder engagement (including investor interface).
- Part 4: Future of Boards Final Report: Summary and Synthesis provides both a synthesis of the detailed findings from Reports 1,2,3 and a summary of the key facts, and their potential implications for boards. To help boards better understand the landscape and navigate future shifts we have created a set of 20 pivotal questions for boards to use as a tool to facilitate discussion and prepare strategically.
What's next?
Phase 2 of the research which will explore and evaluate key findings from Phase 1 in greater depth to produce recommendations to enable boards to better align organisations with sustainability outcomes, and positively contribute to a thriving future for all.
