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  • 2015
  • Corporate governance - the tone from the top

With too much cronyism locally, and globally deficient in digital and diversity, boards need 21st Century upgrade to meet today’s challenges

27 Jul 2015
  • Corporate governance - the tone from the top

A new report released by Grant Thornton finds that the composition of boardrooms around the world needs upgrading to reflect today’s digital economy and diverse business community. The report highlights significant opportunities for improvements to performance and growth to those who meet the challenge. It also points out that, without revision, boards will struggle to meet the diversity of thinking and skills required to effectively advise management teams in meeting the challenges of today’s economy.

Grant Thornton’s new report, Corporate governance: the tone from the top, draws on interviews with business leaders and board members around the world. The research reveals a desire for board members to have current industry knowledge – 62% of those surveyed cite this as an important factor. This is supported in the ASEAN (77%), developed APAC (71%), emerging APAC (70%), Japan (71%) and Thailand (89%) but it seems quite low in the Eurozone (55%) and United States (45%). However, a significant concern raised in interviews with board directors is the lack of technology experience among boards today.

Sumalee Chokdeeanant, Lead Audit Partner at Grant Thornton in Thailand, commented “In Thailand we still suffer from too much cronyism and patronage on the Boards of many companies. Our report indicated that 86% of respondents think that board members should bring new ideas to the table with which to challenge management. This is hardly likely to happen in such an environment, depressing the possibility of growth and innovation.”

Sumalee continued “Globally the role of boards is to set the tone from the top, but also to advise and guide management teams. A lack of digital savvy in the boardroom is a glaring hole. Digital has disrupted markets, and the way we do business, but it hasn’t yet changed boards. The digital sector is also among the most entrepreneurial; generating ideas and innovation. Harnessing this at a strategic decision making level is vital to firms that have an interest in exploiting technology to drive growth.  The truth is, board experience and wisdom on how to run businesses successfully remains as important as ever. However, boards need a 21st Century upgrade.”

“This means boards making best use of their digerati, Chief Digital Officers and other experts. People immersed in the digital dimension must have appropriate influence. If your business only has junior management with digital expertise then your business likely has untapped potential, and you need to reflect on your talent mix, recruitment and people development accordingly. Companies with digital acumen on the board will be better placed to embrace and exploit new technology to drive productivity and performance.”

Grant Thornton’s research also exposes a gap between perception and reality when it comes to the gender composition of boardrooms. While they remain overwhelmingly male – only a sixth of directors globally are women – more than two thirds (68%) of business leaders believe they do an effective job of encouraging diversity. For the countries in the ASEAN, this is most obvious in Thailand (89%).

Sumalee added “Cronyism and patronage promote a lack of diversity that has an impact on performance; groups who are the same think the same. This isn’t good for new ideas and challenging existing practices – something boards tell us they want to see. But this presents a huge commercial opportunity for businesses. Evidence suggests that mixed boards outperform those of a single gender, who can succumb to groupthink.  Diversity means more than just gender – diversity of culture, background, knowledge and thought are all important. But doing more to ensure a better blend of men and women sit at the top table, by creating better opportunities for women to progress, would be a giant step in the right direction.”

“The time is ripe for an appraisal of the way boards operate, their culture, the knowledge they possess and who they consist of. This is critical to ensure they continue to reflect the businesses they govern and the society they are part of. There are real opportunities available to those boards who can successfully adapt.”

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