The growing body of governance literature offers no shortage of views on what boards ought to concern themselves with beyond the routine fare of overseeing management and discussing strategy and finances. Depending on the perspective of the author, topics range from the now well-trodden area of climate oversight to the newer frontiers of nature and biodiversity loss, AI, and geopolitical preparedness. The range of responsibilities boards are expected to carry has grown accordingly, and with it, the challenge of how directors can credibly cover all bases. While each of these areas is legitimate, they are not all of equal importance
First, it is worth noting the broader risks that organisations now face. The World Economic Forum (WEF) usefully categorises global risks under five dimensions:
- economic,
- environmental,
- geopolitical,
- societal, and
- technological.
Though arguably the most fundamental concern for any board, economic matters are typically well understood and competently managed. The audit committee remains the archetype of board committees, and external assurance standards are high. Despite a few well-known high-profile cases, boards are seldom found wanting in matters of financial vigilance. Preserving and enhancing shareholder value remains the core principle of corporate governance. Notably, economic risks do not feature among the WEF’s top ten global risks over the two- and ten-year horizons. While economic shocks are by no means trivial, businesses are generally adept at adapting – if only out of necessity.
So, which of the remaining categories merit board attention, and how should boards provide oversight? As is often the case, it depends. Sector, size, geography and corporate values all influence what is material. The good news is that many companies have developed a sharper understanding of their non-financial priorities, thanks in large part to the efforts of sustainability teams. One driver has been the European Union’s Corporate Sustainability Reporting Directive (CSRD), which requires a “double materiality” assessment. This maps issues both in terms of their impact on the business (such as flooding damaging assets), and the business’s impact on the outside world (such as pollution). By plotting these dimensions against importance to stakeholders, companies gain a clearer view of what deserves their attention.
Organisations that have yet to carry out such an assessment may wish to begin with the Sustainability Accounting Standards Board (SASB) Materiality Map, which outlines key issues likely to be financially material for different industries.
Consider two examples – one from a software company and one from the fast-moving consumer goods sector (FMCG, specifically personal household products).
For a software company, the SASB map identifies the following likely areas of material importance:
- Energy management
- Customer privacy
- Data security
- Cybersecurity—though not a SASB category, logically included alongside the above
- Employee engagement, diversity and inclusion
- Competitive behaviour
- Systemic risk management
For an FMCG business, material issues are likely to include:
- Water and wastewater management
- Product quality and safety
- Product design and lifecycle management
- Supply chain management
In addition to these sector-specific concerns, boards must also consider the broader context. Current global top risks identified by the WEF include misinformation, state-based conflict, and extreme weather. Boards must determine whether, and to what extent, such risks are material to them.
The practical question follows: having identified what is material, how should boards exercise oversight? The recent trend has been to form sustainability committees, often with a focus on environmental and social issues. But with issues spanning multiple domains, is it feasible to establish dedicated committees for every topic? Probably not. A more effective approach may lie in integrating these responsibilities into existing structures with appropriate adjustments. Key questions for boards include:
- Which committees are best suited to oversee which issues, and which are for the whole board to consider? How does this align with reporting lines into the board and overlaps from senior managers such as the Chief Risk Officer, Chief Technology Officer or Sustainability Lead?
- Can existing committees be repurposed to reflect evolving oversight needs?
- Do the board and its committees have sufficient understanding to engage meaningfully with management and external experts?
- Is there a case for appointing an external advisory group to support the board on technical matters?
- Should the board recruit a specialist director, particularly in areas of significant exposure such as cybersecurity or climate?
- Is the chair satisfied how accountability is assigned, and is she confident in the board’s overall capacity to oversee global issues?
- Are internal controls robust and well understood?
- Which directors are energised by these challenges, and which are fatigued? What are the implications for succession planning and board composition?
- Is the board’s skills matrix up to date and reflective of the emerging landscape?
The Legal Context
A brief review of directors’ fiduciary duties in some key markets we operate in helps ground these expectations in legal reality.
United States
Delaware law provides a useful proxy for American legal corporate governance standards. Here, the duties of care and loyalty require that directors make informed decisions and provide adequate oversight of risk. The so-called Caremark standard emanates from a landmark ruling that effectively obliges boards to ensure internal controls are in place to monitor critical business risks. Directors may face liability if they fail to ensure such systems are in place. That said, the bar for negligence is high, and the Business Judgment Rule offers directors considerable leeway unless their decisions are grossly negligent or conflicted. Delaware law is shareholder-centric, and long-term shareholder value can arguably justify consideration of global issues.
United Kingdom
The UK Companies Act 2006 imposes a duty on directors to promote the success of the company for the benefit of its members, taking into account long-term consequences, stakeholder relationships, employee interests, environmental impact, and the need for high standards of business conduct. Unlike Delaware law, which allows for long-term thinking, UK law requires it. Directors are also bound by a general duty of care, skill and diligence.
Germany
Germany’s dual-board system clearly delineates responsibilities. The Management Board must establish systems to identify risks that threaten the firm’s viability, while the Supervisory Board is tasked with oversight of those systems. German law does not enshrine shareholder primacy; the guiding principle is the long-term value of the enterprise.
Codes, Listing Rules and Expectations
Legal obligations are only part of the governance picture. Many boards operate in accordance with ‘comply-or-explain’ codes, such as the UK Corporate Governance Code, often widely adapted globally in various forms. Listing rules, particularly in the United States, also shape board conduct. Institutional investors, pension funds and family shareholders bring further expectations, particularly around the governance of global issues.
Leadership
Above all, leadership matters. Whatever the jurisdiction, ownership, or industry, strong board oversight of global issues depends on engaged and capable leadership. A committed chair and curious, conscientious directors make all the difference. The chair should ask:
- What do shareholders think of relevant disclosures, proxy statements or governance reports around global issues? How do they compare with other portfolio companies?
- Does the board evaluation process provide real insight into effectiveness and the status quo of global issues oversight?
- A revealing question: Are all board members equal? Answers to this question are fascinating and can provide insights into power dynamics.
Evaluating the board’s preparedness for global issues, and its overall effectiveness more generally, can be done as part of the regular board evaluation cycle or separately during periods of change. The following areas should be reviewed:
- Allocation of responsibility for material global issues
- Quality and clarity of committee charters or terms of reference
- What the board says vs. what the board does
- Competence of directors and committee chairs in relevant areas
- Chair’s understanding of key issues
- Training policies and access to expert input
- Currency of the board’s skills matrix
Benchmarking against two or three comparable boards can provide further useful perspective.
Opportunities
Risks, of course, often point to opportunities. Global issues can serve as a guide to where value may be found. Artificial intelligence is one such area. Boards should ask not only what risks AI presents, but how it might reshape the business, enhance productivity or open new markets. The same goes for renewable energy, or for reassessing location strategy in light of geopolitical and trade disruptions. One often overlooked assumption is that natural resources are free. As competition for finite resources intensifies, and as environmental costs are priced in, that assumption will no longer hold. Businesses would be wise to assess market repricing to mitigate margin compression.
Final Recommendations
To enhance foresight and resilience in the face of global issues, boards might consider the following tools:
- Long-term scenario planning, including remote but plausible futures. The Oxford Scenario Planning Approach (OSPA) is a very useful methodology.
- Rapid stress testing of probable short-term risks
- Involving external experts through advisory boards or periodic engagements
- Ensuring board members have direct exposure to key shareholders beyond the chair, including discussions with analysts and stewardship teams
- Adjust board composition
The effectiveness of a board now must include the capacity to adapt to a rapidly changing world. Global issues are not peripheral – they are central to the board’s leadership.
This post comes to us from AvS Advisors, a global business-consulting firm to privately held companies.