While there are clear benefits to the virtual boardroom, unique challenges also arise.
Almost two years into the COVID-19 pandemic, it is clear that the corporate workplace has changed for good. As the world continues to reopen and companies return to the office, what we are returning to is not business as usual, but a new future of work – a future characterized by a shift from the traditional workplace to remote and hybrid models that provide opportunities to work in effective and efficient ways from anywhere. Companies are faced with challenges as they return to the office and are finding they need to adapt to remain competitive, attract talent and stay prepared for future crises. Boards of directors of public companies should play an important role in defining what this future looks like and ensuring companies are set up for success.
The initial response to COVID-19 taught public company boardrooms important lessons on adaptability and resilience. The rapid spread of the virus and the enactment of lockdown measures meant that directors had no choice but to operate remotely as they worked with management to ensure business continuity in light of the unprecedented challenges companies were facing, from liquidity to operational risks and more. Boardrooms quickly gave way to Zoom rooms as directors got up to speed with the remote work technology and implemented new structures and processes designed to increase corporate resilience.
According to a global survey of over 800 directors and executives by McKinsey & Company, since the beginning of the pandemic, structural and process changes enacted by boards include investing in technology and/or tools to enable more digital collaboration, increasing flexibility in meeting agendas, establishing ad hoc crisis-management committees, adopting new crisis-management processes, evaluating the board’s demographic and/or geographic diversity and increasing the frequency of interactions between the board and management in between meetings, thereby increasing collaboration between management and the board.
After getting through the initial hurdlesand repeated exclamations of “You’re on mute!,” it sank in that the future of work, including for boards of directors, would be transformed into a hybrid in-person and virtual approach. Meeting virtually through the initial phases of the pandemic not only made directors more efficient in terms of real-time crisis management, but proved that remote work would be a useful tool for directors in overseeing and collaborating with management going forward. Virtual boardrooms can increase directors’ level of involvement, enhance their collaboration with management and provide several overall benefits:
- Increased attendance and reduced travel – flexibility in scheduling meetings and reduced need for travel makes it easier to increase attendance at board meetings, while leading to associated cost savings for the company and a reduced carbon footprint.
- Shorter agendas and crisper presentations – the ability to schedule shorter and more frequent meetings allows for agendas to be more compact and address specific issues.
- More inclusive and focused conversations – alongside shorter agendas, meetings can be more direct and focused, with both full board and committee meetings able to address individual topics on a more timely basis.
- Broader exposure to key executives and experts – meeting virtually makes it easier to bring in more members of management beyond the C-suite, providing directors with greater exposure to executives; it also allows for experts to be brought in more easily to give directors detailed information and provide the opportunity to ask questions directly.
While there are clear benefits to the virtual boardroom, unique challenges also arise. As directors navigate the future of work, they should consider the potential drawbacks that may come with an overreliance on the virtual approach and how this can affect the exercise of their duties. Directors owe the corporation a duty of care that requires them to inform themselves of all material information available prior to making a decision and to exercise reasonable care. In addition, the duty of loyalty requires directors to act in good faith and make decisions in the best interest of the corporation rather than for personal benefit. In a fully remote environment, it may be more difficult for directors to stay engaged or foster the relationships among themselves and with management that are necessary to develop a strong corporate culture and effectively collaborate. It may also be more difficult for directors to maintain their duty of confidentiality, as virtual platforms could be exposed to cybersecurity breaches. Directors should keep these duties in mind as they continue to use the virtual tools at their disposal.
Given these pros and cons, the boardroom’s future is likely not in either extreme, but in a hybrid approach that combines aspects of virtual and in-person meetings. Hybrid meetings come in different shapes and sizes, and boards should consider the particular advantages and disadvantages of different models.
One hybrid approach is combining in-person and virtual attendance, with some directors meeting in person and others joining remotely. This approach allows for directors in the room to build personal relationships without sacrificing attendance, as directors unable to travel can join the meeting remotely. Challenges include leveling the playing field and ensuring that virtual members remain engaged and actively participate in the conversation, as it can be difficult to manage the dynamics between those in person and those on screen. Minimizing technology issues and ensuring the proper setup can help overcome these challenges. For example, establishing clear communication protocols and providing individual cameras and microphones for those directors who are attending in person can help create a more inclusive environment for those attending virtually and lead to more productive conversations.
Another hybrid approach involves having a certain number of in-person meetings per year, with the rest held virtually. Complex or more strategic discussions can be saved for in-person meetings, while issues that are dealt with on a regular basis or more time-sensitive matters that would have otherwise been dealt with telephonically can be the focus of virtual meetings. This approach puts all directors on the same playing field and saves the more important strategic discussions for the face-to-face encounters that more clearly benefit from personal interaction. However, it can also highlight some of the drawbacks of meeting in person, such as increased costs, lower attendance and potential health concerns.
In either scenario, companies with hybrid meetings should be mindful of how their director attendance policy defines “attendance” and ensure that remote meeting attendance fulfills the requirements of the policy. If directors choose the hybrid approach of having a number of meetings in person per year, in-person attendance at those meetings should be strongly encouraged. Companies should also consider disclosing whether board meetings were fully remote or hybrid in their proxy statements and measures taken to ensure directors remain engaged.
Boards can take several approaches to maximize engagement and efficiency in a virtual environment:
- Maximize preparedness and discussion – provide directors with detailed pre-work materials and use the meetings for actual discussion and debate rather than introducing and/or summarizing topics for the board.
- Monitor engagement – the Chair of the board or a specific committee should play an enhanced role in guiding the conversation and ensuring that all board members are focused and participating. Consider using virtual tools (breakout rooms, polls, chat boxes) to increase participation.
- Focus on timing – consider scheduling shorter and more frequent meetings or breaking up sessions to have targeted, topic-driven discussions instead of potentially drawn-out or all-day meetings.
- Manage technology – establish a communications protocol and ensure the platforms used for meeting remotely work properly and are secure; provide directors with clear instructions and IT assistance in case of technical challenges.
- Recreate the in-person experience – organize social events outside meetings to the extent possible, to recreate the in-person dynamic and relationship building that may be lost in the virtual environment.
Regardless of the specific approach boards take towards their own operations in a hybrid environment, it is crucial that boards build on the lessons from the pandemic on risk oversight and preparedness. An effective board is an informed board, and directors should understand the entire ecosystem in which their companies operate and the interconnection between different risks and the strategies developed to address them, particularly when it comes to risks arising from how business operations are changing with the future of work in the form of hybrid-based models.
As companies adapt and make changes to business operations, it is important to ensure there are robust reporting systems and controls in place to keep the board informed of key developments, including plans for reopening and returning to traditional work environments, creating new opportunities for remote and hybrid work, adopting effective communication strategies and developing and implementing communicable disease policies to mitigate the legal risks associated with returning to the office in the current environment. Boards should exercise their core oversight and risk-management duties through thorough discussions and ensuring decisions and actions are properly recorded in the board’s minutes and records to help mitigate risks of potential Caremark claims.
How companies approach returning to the office and adapting to the future of work can have long-lasting impacts. Aside from developing ways to maximize the benefits of remote and hybrid work for directors themselves, boards should play a role in working with management to clearly define return to office strategies that properly account for the importance of workplace culture and are flexible toward the future of work. This process will require that directors make sure they fully understand the risks involved in operating in the current environment, from the increased cybersecurity risks associated with the infrastructure supporting remote work to the growing supply-chain and resource management issues associated with the continuation of the pandemic, emergence of new virus variants and employee burnout. Directors should more closely oversee talent management and human capital policies to ensure that corporate culture in the post-pandemic era is strengthened by the lessons learned from the pandemic, with an increased focus on the creation of long-term value.
Cleary Gottlieb, January 11, 2022