Boards and the permanent revolution in governance: the real story over the next decade will be how boards respond to these five ever-rising challenges.

• Author: Dysart, Theodore L.
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

FOR BOARDS TODAY, the past is prologue. The revolution in expectations for better corporate governance, director accountability, and board composition began some 20 years ago with the initial activism of large institutional investors. At the midpoint of 2013, it appears that it will not only continue well into the future but accelerate. This state of more or less permanent revolution will increase the urgency of some by now familiar challenges and give rise to new ones. Among those challenges, five in particular stand out:

As the risks of board service escalate, the pool of director candidates will continue to shrink. Since the financial meltdown of 2008, recruiting qualified and active directors has become notably harder. Many companies restrict the number of outside boards their CEOs or other officers can join, and increasing regulatory scrutiny, director liability, and shareholder activism have made board service less appealing to many qualified candidates.

Looking ahead, many leaders tell us that two aspects of this environment give them pause about board service. First, they foresee directors increasingly being held accountable for things over which they have little control--a rogue executive violating the Foreign Corrupt Practices Act, for example. For many leaders, such reputational risks are unreasonable. Second, active executives fear the encroachment on their time that a corporate crisis could require. According to the National Association of Corporate Directors (NACD) 2012-2013 Public Company Governance Survey, the hours individual directors already devote to board service has grown from 155 a decade ago to an average of 200230 in recent years. That already heavy commitment can grow exponentially in the face of any of a long list of possible crises: not only corporate malfeasance but also financial calamity, a hostile takeover, the sudden death or departure of a CEO, or a natural disaster that disrupts business continuity. The reluctance to serve that reputational risk and time pressure create is unfortunate--every board needs some active executives who currently face the same business conditions the executive directors face.

Expanding gender, racial, age, ethnic, and skill-based diversity in order to better address operational and marketplace issues will also become more challenging than it is today. Board diversification is an increasingly important topic inside boardrooms. In addition, external pressure to achieve diversity on...