29 Jun. 2016 | Comments (0)
Three-quarters of the UK’s FTSE 250 companies had not discussed contingency planning for a possible Brexit with the chairman of the board or the chairman of the audit committee. The failure of corporate boards and management to engage on a matter of such significance presents a cautionary tale for nonprofit boards on at least three levels: risk management; board process and agendas; and board composition.
In the case of Brexit, if company management had not been surfacing the topic on the board agenda, and board members did not ask questions, then how can shareholders have any confidence that boards and management are engaging on other matters that will affect the company’s value—issues such as climate change, ecosystems loss, and human rights, for example?
Similarly, nonprofit boards and management must ask themselves: Are we identifying and addressing vital matters that might affect our ability to achieve our mission? Can funders, supporters, and the community have confidence in our leadership and vision?
Managing risks from Brexit and other current events
The UK’s forthcoming exit from the European Union presents numerous threats and potential opportunities for multinational corporations. For example, without the free movement of workers, tech companies could lose access to people with valuable expertise, and the hospitality industry could lose access to the international workforce. Manufacturing companies might be shut out of markets in the EU, the destination for about 44 percent of UK exports. Financial firms might be unable to passport their services into the rest of the EU under single market rules. There are a multitude of additional risks that vary by industry.
Brexit is a cautionary tale for nonprofit boards as well, in particular to identify, understand, and address risks and opportunities that are most likely to impact the organization and its ability to fulfill its mission. This might be the demise of a key funder that jeopardizes a vital source of revenues, a change in the political landscape will drive greater demand for the nonprofit’s services, or rising populist antipathies to the people served by the nonprofit.
Raising questions of board composition
For multinational corporations, the Brexit experience underscores the value of more diverse boards. People of different ages, having grown up in a variety of countries, and with broader experiences are more likely to provide context and ask questions related to economic, social, environmental, and political matters that affect the global marketplace. These views can inspire fresh awareness of risks and opportunities for the company to grow its value through innovation.
Nonprofit boards can learn valuable lessons from the lack of board diversity among corporations and the resulting inability to identify and raise vital issues. Nonprofit boards that comprise people from a variety of backgrounds, who bring the diversity of skills, experience, and expertise that is required, are best equipped to imagine and help to achieve the organization’s greater potential and address threats.
Lessons from Brexit: Improving corporate governance
The shock waves to global markets triggered by Brexit should be a warning to corporate boards to take vital steps going forward. Nonprofit boards must also take a careful look at the same issues.
- Review the board process for engaging with management to identify issues for governance oversight and attention.
- Review the protocol for creating board agendas, particularly in determining which matters will be brought to the board’s attention and when.
- Charge the Governance and Nominating Committee to review the board’s composition in light of threats and opportunities. The Committee should ensure that the board has the diversity of experience, expertise, and perspectives that is required for the board to be qualified to provide context and ask the right questions.
Better governance to grow value and a better world
Brexit reminds us that corporate and nonprofit boards must be comprised of people with the right qualifications, who are aware of the broader context, in order to collaborate effectively with management to achieve the organization’s mission in service to the community.