The increasing complexity of director roles and the unintended consequences

Like everything in the world, the role of a board director is getting more and more complicated. Directors are required to do more than ever before regardless of what type of board they’re on, whether it’s a not-for-profit, corporate, or school.

What are the reasons behind this increase in complexity? Well, there are plenty. But the main driving forces are:

●  Technological changes and the rapid pace in which they’re occurring

●  Shareholder activism and other external pressures, such as climate change

●  Changing regulations in the workplace and the subsequent effect on workspaces 

These, and more, are massive concerns for directors. Where there’s more work and more added pressure to the role, there must be more time provided in order for directors to perform effectively . 

There are three possible ways a board could combat this time constraint. 

First, they could recruit more people to the board and/or to sub-committees with delegated governance authority. More hands could mean lighter workloads.

Second, the board could downsize their responsibilities and focus on fewer, more long-term strategic issues. This is their role, but part of the increased complexity and its rapid pace of change means that boards are often forced to play a game of reactive catchup rather than proactive planning. 

Third, boards could demand more time from their directors. This could work for paid board directors if their remuneration increased to compensate that time, but what about those millions of voluntary positions, especially the ones done by people with full time jobs?

Given the recent revelations from Australia’s Royal Commission into the misconduct within the banking, superannuation and financial services industry which highlighted an issue with the information flow between boards and management, reducing the purview of boards would appear problematic.

If we assume the first and third solutions are a must, then the unintended consequence of that is a huge shortfall in experienced directors.

Because if we increase the amount of time a director must dedicate to each role, it’s logical to assume that an individual director will not be able to effectively handle as many roles as they might have. This means resigning from some boards, creating a gap in many (or perhaps a relief to others). These gaps must be filled.

Similarly, if we seek to increase the number of directors or people in governance positions on sub-committees, we need to find those people somewhere. 

The only alternative is boards getting smaller, and then we are back to boards having fewer responsibilities. 

So, given the low chance of boards getting smaller, this means higher levels of recruitment must be implemented. This is a great chance for boards to look beyond what they already have, and begin creating a whole new pipeline of fresh directors. 

Coincidentally, the widening of the director net has already been seen. In 2018, Spencer Stuart reported that 45 percent of all new board directors were taking on their first ever board role. While this figure is not that unusual (it’s been hovering at around 25-30%), it’s still highly significant. This perhaps reflects well on how boards are embracing this latest challenge, and are encouraging and training first-time directors.

Brian Stafford, a recent guest on our Boardroom Hustle podcast, had some excellent insights into the emerging complexities around director roles. Brian also theorised that there’s a ‘knock on impact’ that comes from the increasing challenges in a board role, resulting in directors taking on fewer roles. This is also resulting in an inability for director pay to keep pace with all the changes (especially technological), which tends to add to the already glacial pace of many boardrooms.  

We now know the importance of breeding a larger pool of new directors. But how can we best prepare these directors in a role that just grows in its challenges and complexities? They could be encouraged and ‘blooded’  by being placed in sub-committees or less complex boardrooms, which is a highly effective way of orientating them and filtering the best from the rest. They could receive training in effective governance, but this is often expensive and therefore only for those with the means – which doesn’t exactly aid diversity. 

It’s enormously important to avoid discouraging the next generation of directors through discussion of the supposed increase in pressure. The role is more difficult than ever, yes, but it’s also more interesting, fun, and challenging. This shouldn’t be cause for intimidation, at least for the right person.

So how can we overcome this rising challenge being seen in the director role? One of the most effective methods is to create a board culture that can cope with new people from a wider pool of talent, and can cope with the resulting (cognitive) diversity. Directors no longer should be solely sought from the C-Suite or those that fit a more traditional mould.  

The best way forward is to encourage a broader style of director, from different backgrounds, ethnicities, cultures, religions, genders, and with varying life experiences, both long and short. Boards are slowly realising they need to open up to the risk of not looking further ahead, and putting succession plans at the forefront of strategic thinking.