Reimagining the Board: DISRUPTION IS CHANGING THE ROLES OF THE BOARD, ITS COMMITTEES AND ITS RELATIONSHIP WITH MANAGEMENT.

• Author: Essenmacher, Erin

Venture capitalist Scott Lenet once described the changing nature of competitive risk as "less the shark that might come and eat your lunch and more death by a thousand tiny piranhas." In other words, any one competitor may not be cause for concern, but the cumulative effect of many competitors, if not monitored and taken seriously, can overwhelm an established brand.

The role of the board is going through its own "thousand tiny piranhas" moment. Ask any director to identify the transformative events that mark out changes in board governance, and they will likely point to the series of high-profile governance failures that led to Sarbanes-Oxley and a recalibration of risk oversight, or the passage of Dodd-Frank 10 years later as a response to governance failures that helped fuel the great financial crisis.

We are in the midst of a third wave of how we understand the role of the board, and this time the change is not driven by a legislative event but by a number of converging forces that are reshaping the definition of good governance, including technology, talent, climate change, social demographic shifts and the increased transparency driven by social media.

"In the last 15 years or so the level of strategic complexity that boards and directors have to face has increased exponentially," says Anna Catalano, who serves on boards across the energy, technology and manufacturing industries. "Companies that had kind of merrily gone along and just done everything they've done before, just a little bit better or a little bit faster, are finding the things that got them across the finish line for many, many years are no longer sufficient."

As company leadership grapples with how to keep up with changes in the business environment, boards grapple with how this changes the nature of their work, too. The fundamental role of the board--to provide effective oversight of risk and value creation through good governance--has not changed. What has changed is how we understand what constitutes risk and what creates value, and how that impacts governance, and it's reshaping what it means to be a good director.

"It comes down to process and paranoia," says Cindie Jamison, who serves as lead director of Tractor Supply and sits on the boards of Darden Restaurants, Big Lots and Office Depot. "The paranoia comes from the feeling that there are many external things that you can't control but you have to protect against. Twenty years ago, they weren't talking about cybersecurity. They weren't talking about social media. They weren't talking about digital disruption. That's the paranoia element--how many more things do I have to worry about?"

Rethinking strategy and risk

Getting arms around this increased level of disruption increasingly means understanding that issues that were once deemed "softer"--things like talent, culture and environmental and social concerns--are now critical drivers of strategy and risk.

"When I first came to this work, board members would say their main role was to pick the right CEO and, in a sense, get out of the way," says Bill McNabb, the former CEO of Vanguard who now serves on boards including UnitedHealth and IBM. "Fast forward to today, and the best boards are really trying to understand the breadth and depth of talent and the culture that talent creates, because we've seen more companies fail on that dimension than almost any other."

"The social movements we're seeing have really shined a light on what the board is doing about its corporate culture," says Chelsea Grayson, a former general counsel and CEO who now serves on the boards of Spark Networks, Goodness Growth Holdings and iHerb. "That focus wasn't there as much as it has been over the past five or six years. MeToo, Black Lives Matter and other social movements have changed the expectations. You can't know that those things could take down your entire company and then not change your culture very deliberately. Most people recognize that this has to come from the boardroom, first and foremost. That's where the examples have to be set, that's where the policies have to be written."

Environmental risks are not new to certain sectors like manufacturing, but as understanding increases of how climate change threatens supply chains and entire business models, these risks create new...