The future of governance: Boards meet evolving risks

The boards of the future need to be as diverse and trained as those they govern

The role of boards of directors is undergoing a seismic shift, fueled by technological advances, economic volatility, regulatory changes, and stakeholder expectations. To remain effective stewards, boards must adapt alongside businesses, expanding their expertise and continuously refining their governance strategies.

As risks continue to evolve, some organizations will be left wondering: Should ongoing learning and development be mandatory for board members? Could improving literacy in AI, cyber risk, and sustainability improve decision-making and strategic foresight?

Gain a competitive advantage

Board diversity is no longer an ethical imperative — it’s an asset. Canadian Securities Administrators (CSA) report that women now hold 29 percent of board seats among Canada’s largest publicly traded companies. New Institutional Shareholder Services guidelines require at least one racially or ethnically diverse board member for S&P / TSE Composite Index companies.

While progress is being made, it’s worth reiterating the importance of diverse perspectives at the leadership level for fostering innovation, resilience, and public trust. Boards need to expand their traditional focus on the financial stability of an organization and management’s ability to deliver on the strategic plan. Directors and management who encourage agility and innovation will be valued and instrumental in challenging the organization to be more progressive in the face of global and economic uncertainty.

Boards are also facing more regulatory inspection. The CSA has proposed National Instrument 51-107 to standardize climate-related disclosures. If it proceeds, companies will be expected to proactively integrate climate risk into governance or face penalties and reputational damage.

Additionally, proxy advisor firms like Glass Lewis have signaled that poor cyber oversight may lead to negative recommendations against directors, particularly for organizations that are materially impacted by cyber incidents. Boards need to collaborate with management to improve cyber security measures and make sure they stay resilient in the face of digital threats.

Risks to watch

Shareholder activism: Boards are under greater pressure from activist investors, so they need to be transparent and actively engaged.

Diversity and inclusion: Ongoing regulatory and proxy advisory policy changes underscore the importance of diversity within boards. 

Cyber security threats: Rising cyberattacks and ransomware incidents are putting board-level oversight to the test.

Regulatory compliance: Changing regulations, particularly around ESG, are demanding more attention and resources.

Talent development and succession planning: Boards need to focus on assessing current leaders and identifying gaps in their talent pipeline to navigate a changing business environment. 

Economic uncertainty: Inflation, interest rates, and volatile financial markets could impact financial stability and require board direction.

Technological integration: New technologies to enhance operations can be both an opportunity and an obstacle and require oversight. 

Reputation and brand management: Increased social media scrutiny and consumer expectations mean boards need to handle any crises quickly.

Third-party risks: Managing risks associated with external vendors has become increasingly important to operational resilience.