We live in a time with increased opportunity, and pressure, for organizational boards to move beyond their traditional role of developing company strategy and selecting a CEO. Boards have a significant capacity for effecting environmental, economic, and social change. Corporations make up a significant portion of the global economy, with employees and stakeholders betting their careers on boards using good judgement and doing the right thing. That being said, it is important to consider the actual legal responsibilities and capabilities of boards, as industry outsiders may not fully understand the limitations boards face.
Regardless of industry, boards must make a concerted effort to appropriately split their time and focus between immediate concerns versus longer-term strategy. From the financial crisis of 2008 to the COVID-19 pandemic, recent history has clearly shown that when the world changes, boards are forced to consider and prioritize urgent needs. Throughout the COVID-19 pandemic specifically, boards risked pivoting away from long-term strategic planning efforts in order to focus on key questions related to keeping the company afloat, maintaining employee safety and health, and ensuring continuity of operations. Conversely, periods of time with solid revenues and stable environments allow for increased bandwidth for addressing longer-term strategic issues.
To accomplish their goals, boards make use of metrics regarding organizational performance. These metrics vary not only across industries, but also within industries. For example, the banking industry is made up of a range of organizations of similar significance and global importance, but with vastly different retail footprints. One entity may have a significant number of retail locations, while others may not need branches because they focus on wholesales or business-to-business services.
These differences carry over into the types of metrics needed to evaluate organizational success. While the individual metrics available will vary based on industry and subsector, a common cross-industry factor considered by many company boards is return on invested capital. Ultimately, all boards are accountable to stakeholders for the level of return produced by the organization.
Climate Change: How Boards Are Approaching the Energy Transition
A recent interview with Dambisa Moyo, economist and author of How Boards Work: And How They Can Work Better In a Chaotic World, provided an opportunity to explore these issues in the context of climate change and the energy transition. Moyo was named to the list of Time Magazine’s 100 Most Influential People in the World and is a member of the boards of Chevron, Condé Nast, and 3M company.
The crisis presented by climate change has pushed large, multinational operators to develop and implement transition strategies that involve investments in alternative forms of energy.
According to Moyo, the boards at the head of these organizations are made up of members who fundamentally understand the importance and significance of addressing climate change. She candidly states that she, “[has] not been in any boardroom over [her] past 12 years on boards where anyone does not believe that climate change is urgent, important, and significant.”
However, these boards must also weigh the true impact of energy systems. By utilizing an investor lens, boards can expand their focus beyond risk mitigation to include additional considerations related to innovative ways of developing and deploying clean energy systems. Moyo believes in the need for sensible discussion about the matter that considers the fact that energy systems are, “incredibly complex and incredibly impactful in our day-to-day life.”
This expanded focus puts boards at the center of the conversation about human progress and the future of society from a renewable energy perspective. With 1.5 billion people on the planet lacking access to sustainable and cost-effective energy, the discussion about the transition away from fossil fuels is vital and necessary. However, the strategies that arise cannot be carried out in a hasty way that could cost people their livelihoods.
Regarding this issue specifically, Moyo states, “Yes, we know about greenhouse gases. Yes, we need to think about CO2 sequestration, CO2 emissions, and water use intensity. Those things are absolutely important. But we also need to think about upside investing. That is a duty that we have not only to our shareholders, but to society and stakeholders if we're going to continue to have human progress. [What I mean by that is] that the conversation has to [consider] solar, wind, water, hydrogen, geothermal energy, [and] nuclear energy. That is a conversation we need to have, because the world cannot grow and progress by shrinking.”
Further, energy organizations face a higher level of uncertainty when compared to organizations that are able to set prices. Because corporations do not set oil prices, boards must respond and make decisions about allocating capital and human effort based on market prices. Regardless of energy type, boards leading energy organizations must constantly strive to balance demand in terms of demand and supply.
While many would argue in favor of more aggressive policies to combat climate change, Moyo proposes that organizations lean more heavily on innovation and technology. Ultimately, the world must work together to address this very large public goods issue. This requires that organizations appropriately review how they are contributing to greenhouse gases. According to Moyo, effective assessments consider three scopes:
- How does our organization and its operations contribute to climate change?
- How does the production of our products contribute to climate change?
- When consumers use our products, does that use contribute to greenhouse gas emissions?
The third scope reflects an important consideration for boards—if a consumer’s use of a product contributes to climate change, is the organization responsible for the emissions? This question is currently at the heart of boardroom discussions about climate change. It also demonstrates the level of ethical investment required of board members as they strive to make decisions that benefit stakeholders while also considering the organization’s ability to positively effect change in society as a whole.
How To Become a Board Member
Across industries, boards are constantly seeking members who demonstrate expertise in subjects relevant to running complex global businesses. Boards “are looking for people who are avid learners and who show time and time again that they are setting themselves apart from [other] people who may want to be on a board,” said Moyo.
Moyo herself spent many years working to join her first board. For individuals wishing to join a board, her advice is to work hard to become a known expert in pertinent fields such as digitization, climate change, global geopolitics, and economics. Regarding her own experience, she states, “I tried...for many years before I got on my first board. I got the door slammed in my face many times for 5 to 7 years. Fortuitously, I managed to get into my first board in 2009. I think the sense was that over 10 years ago boards had a very narrow approach to board recruitment. They were looking for CEOs and CFOs, and I didn’t come from the C-Suite. What they were looking for when I joined my first board was really a global perspective.”
Boards are also looking for individuals who have good judgment and who are capable of making good decisions about the future of an organization. While this seems simple when taken at face value, ultimately boards are responsible for making wide-reaching decisions about highly nuanced and complicated issues ranging from data privacy to climate change. The ramifications of these decisions require that board members come prepared with a firm foundation of knowledge and experience.
