Key skills needed in modern boards

Dr Newton Demba

IN today’s fast-evolving and increasingly complex business landscape, the board of directors plays a critical role in ensuring the strategic direction, governance and sustainability of an organisation.

To effectively fulfil these responsibilities, boards must possess a diverse array of competencies.

Research has consistently demonstrated that the right capabilities in boardrooms are crucial for the health and growth of an organisation.

However, empirical evidence also reveals that the failure to adopt and develop these competencies can lead to significant negative outcomes, from financial losses to reputational damage.

Below is an exploration of key skills needed in modern boards, with both empirical evidence supporting their importance and real-world examples where neglecting these skills led to failures.

1. Strategic thinking

Strategic thinking encompasses the ability anticipate future trends, recognise market shifts and navigate long-term challenges. A McKinsey study (2019) highlighted that companies with robust strategic planning frameworks outperformed their competitors by 15 percent in revenue growth, underscoring the necessity of foresight and long-term vision in boardroom decision-making. In contrast, companies lacking strategic foresight often struggle to adapt. For example, Kodak’s failure to recognise the shift to digital photography is a classic case of strategic oversight. Despite having digital technology within its reach, Kodak’s leadership was slow to transition from film-based products, ultimately leading to a bankruptcy in 2012. This failure to think strategically, compounded by poor decision-making at the board level, highlights the critical importance of maintaining a future-oriented perspective.

2. Digital literacy

With the rise of digital technologies such as AI, machine learning, blockchain and cybersecurity, boards must be digitally literate to navigate the complexities of digital transformation and to understand their implications. Gartner’s 2020 report found that digitally literate boards are 30 percent more likely to succeed in digital transformations as they can make informed decisions regarding technological investments and digital risk management. Yahoo’s decline is a cautionary tale in this regard. The company’s board failed to understand the implications of digital and mobile technologies, which led to missed opportunities and a disastrous failure to innovate against competitors like Google and Facebook. Yahoo’s inability to embrace digital transformation ultimately contributed to its sale to Verizon in 2017 for a fraction of its former value.

3. Risk management

Effective risk management involves proactively identifying, evaluating and mitigating risks to safeguard the organisation from unforeseen challenges. The National Association of Corporate Directors (NACD) (2019) found that boards with expertise in risk management saw 40 percent fewer instances of major financial or reputational crises, illustrating the importance of robust risk assessment frameworks. The failure of Lehman Brothers in 2008 illustrates the catastrophic consequences of inadequate risk oversight. The board failed to assess and manage the risks tied to mortgage-backed securities, leading to one of the largest bankruptcies in history and a global financial crisis.

4. Leadership and governance

Strong leadership ensures that boards set a clear direction and uphold governance standards. Harvard Business Review (2019) identified that boards with effective governance structures showed 25 percent higher sustained profitability. This underscores how leadership directly correlates with organisational success. In contrast, Enron’s downfall underscores the consequences of poor leadership and governance. Enron’s board allowed unethical behaviour, financial manipulation and lack of oversight to thrive, which ultimately led to its bankruptcy and a loss of shareholder value, highlighting the need for transparent and accountable leadership.

5. Communication and collaboration

Effective communication and collaboration among the board, management and stakeholders are critical for organisational success. The Conference Board’s 2020 study found that companies with boards emphasising transparent communication were 35 percent more likely to enjoy high employee engagement and shareholder satisfaction. Volkswagen’s emissions scandal in 2015, however, shows the risks of poor communication. The lack of transparency at the board level regarding emissions cheating led to a massive scandal, loss of consumer trust and billions in fines.

6. Diversity, equity and inclusion

Diverse and inclusive boards bring varied perspectives that can drive better decision-making and innovation. McKinsey’s 2020 report found that organisations with more gender and ethnically diverse boards performed 36 percent better in profitability than those with homogenous boards, highlighting how diversity contributes to improved business outcomes.

7. Financial acumen

A board must possess strong financial acumen to guide investment decisions, financial planning and budget oversight. According to a Financial Times (2019) analysis, boards with a deep understanding of financial management reduced operating costs by up to 15 percent and were 20 percent more likely to sustain profitability during economic downturns.

8. Industry knowledge

Boards with a deep understanding of the industry are better equipped to identify emerging trends, risks and opportunities. Harvard Business Review (2018) reported that boards with in-depth industry expertise are better at driving innovation and market share growth. Blockbuster’s failure to understand the impact of streaming services and digital content delivery led to its demise as it failed to compete with the likes of Netflix, which was backed by board-level recognition of industry changes.

9. Innovation and entrepreneurship

Encouraging a culture of innovation is essential for fostering long-term growth. The World Economic Forum (2020) found that companies that prioritise entrepreneurial thinking within their boards see 22 percent higher revenue growth, as boards promote risk-taking, investment in research and development, and the pursuit of new business models. The downfall of Blackberry serves as an example of a company that failed to innovate fast enough. Its board’s reluctance to pivot from its hardware-based business model contributed to its loss of market leadership in the smartphone industry to Apple and Android.

10. Global perspective

Understanding international markets, cultural nuances and global regulatory landscapes is crucial for boards overseeing multinational operations. McKinsey Global Institute (2019) reported that companies with a global perspective are 40 percent more likely to scale successfully in new international markets, as they can adapt their strategies to local demands.

11. Cybersecurity

As cyber threats increase in sophistication, boards must understand cybersecurity principles to protect organisational data and infrastructure. Harvard Business Review (2019) found that boards with cybersecurity expertise are better equipped to manage risks. The Equifax data breach in 2017, where personal data of 147 million Americans was compromised, occurred partly due to insufficient cybersecurity governance at the board level, resulting in significant financial and reputational damage.

12. Data-driven decision-making

The capacity to interpret data and leverage analytics for decision-making is a core competency for modern boards. A McKinsey (2019) study found that companies that used data-driven decision-making in their boardrooms were 23 percent more likely to see improved operational efficiency and 20 percent more likely to experience growth in market share.

13. Stakeholder engagement

Engaging effectively with stakeholders — including employees, customers and investors — is critical to long-term success. Harvard Business Review (2019) identified that companies with robust stakeholder engagement strategies were 30 percent more likely to retain customers and employees. BP’s response to the Deepwater Horizon oil spill in 2010 is a striking example of failing to engage stakeholders effectively, which severely damaged its brand, resulting in billions in losses and long-lasting environmental consequences.

14. Crisis management

Boards must be adept at managing crises to mitigate reputational damage and operational disruptions. The Harvard Business Review (2019) noted that boards with crisis management skills can respond 40% faster to disruptions. The Boeing 737 MAX crisis is a pertinent example of a board’s failure to act swiftly and decisively in the face of an operational and reputational disaster, leading to significant financial losses, regulatory scrutiny and damage to consumer trust.

15. Continuous learning

As industries and technologies evolve rapidly, boards must commit to ongoing education. The NACD (2020) emphasised that boards that prioritise continuous learning are 35 percent more likely to adapt to new regulatory environments, technological innovations and best practices, ensuring they remain competitive. In a rapidly changing environment, boards must commit to continuous learning to stay current on emerging trends, technologies and best practices. Companies like Kodak and Blockbuster failed in part because they did not prioritise learning and adapting to the digital age, leading to missed opportunities for innovation.

The complexity of modern governance necessitates a diverse set of competencies that enable boards to guide organisations through dynamic and challenging business environments. Empirical research underscores the importance of the skills outlined above, demonstrating that organisations with boards equipped with these capabilities outperform their peers in terms of profitability, innovation and long-term sustainability.

By prioritising these competencies, boards can enhance their effectiveness, ensuring they are prepared to navigate and shape the future of business.

Dr Newton Demba is a management consultant, non-executive director and adjunct lecturer at the University of Zimbabwe in the Faculty of Business Management Sciences and Economics. He writes in his personal capacity. For feedback; [email protected] or +263784166296