While we are not necessarily advocating a radical and immediate re-composition of the board, we do see value in developing a diverse pipeline of senior C-suite leaders for succession planning purposes. Boards should also encourage CEOs to do the same when appointing people to senior management positions. At present, CEOs appear to overlook this issue: when asked about the most important changes that could be made to the C-suite, only 8% cited greater diversity and 7% said talent from outside the company.
Boards should also consider engaging with external subject matter experts where appropriate and regularly seek a broader range of internal perspectives – including through programs such as reverse mentoring – to expand their horizons.
3. Make purpose your path to prosperity
Stakeholder expectations of businesses are growing and changing: 66% of C-suite respondents to the EY Long-Term Value and Corporate Governance Survey believe that COVID-19 has increased expectations from stakeholders that their companies will drive societal impact, environmental sustainability and inclusive growth. And 78% believe that a focus on sustainable and inclusive growth has been critical to building trust with stakeholders in today’s uncertain times.
Yet a significant “say-do” gap with respect to long-term value remains: execution it would seem is not keeping pace with intention. This suggests a lack of common understanding of how to truly integrate long-term value into the entire organizational value chain.
Therefore, boards have an opportunity to strengthen their corporate governance around stakeholder commitments, embed purpose into their business strategy and ensure accountability. One way of doing this is to compensate executives based on their progress on delivering long-term value to stakeholders in line with the business’ purpose-led strategy. EY teams estimate that linking 15–25% of pay to long-term value metrics would make a significant difference. Defining or redefining the organization’s purpose is the critical first step.
But it is not enough to simply improve outcomes for a wider set of stakeholders; organizations must also demonstrate transparency by measuring and reporting on their progress. As such boards should guide management to consider a shift towards greater integrated reporting by accounting for items such as intangible assets, to more accurately reflect the true long-term value of the organization. To draw inspiration on how to achieve this we recommend referring to the work completed by the Embankment Project for Inclusive Capitalism (EPIC) (pdf), which outlines a framework for creating and measuring long-term value.
By focusing on the three areas, boards should find themselves in a better position to guide their organizations to navigate the increasingly disruptive risk environment, seize transformational opportunities and ultimately deliver long-term value to a wide range of stakeholders.