Board Governance: A Return to Core Oversight
By Sheila Hooda, Contributing Author / April 1, 2024
Sheila Hooda is a recognized and experienced independent director serving on multiple public and private boards. She is a former C-Suite executive at Fortune/S&P 500 financial and business services and regulated companies. Views expressed are her own and not representative of the companies she serves.
Board Oversight Responsibilities
Board oversight responsibilities are extensive and expanding as boards navigate multiple impacts, including geopolitical shifts, global tensions, technology advancements, sustainability, changes in the macro environment, increasing consumers and work force needs, heightened shareholder demands and activism, and shifts in regulations.
Yet the fundamental fiduciary responsibilities of a board remain unchanged, which is providing oversight of the long-term sustainability of the company, selecting the CEO, guiding a robust Enterprise Risk Management (ERM) and Resilience framework, overseeing board composition and stakeholder engagement.
We believe that all existing and emerging areas of board oversight can be addressed by an enhanced focus and prioritization of core functions.
Prioritizing Oversight of Long-Term Strategy and Sustainability of the Company
The board’s role in setting the overall long-term direction and vision of the company is getting re-prioritized in this evolving era. While boards provide the structure for evaluation and decision making and empower management to execute against the strategy, there is the concern that in volatile times, there could be a tendency to fight fires and emphasize the short term at the expense of the long-term sustainability of the company.
Therefore, effective boards are spending more time on long-term strategic planning in partnership with management, using horizon scanning and scenario planning. As required, they are also leveraging the expertise from external advisors to deeply understand and anticipate potential business model disruptions and emerging competitors to enable them to respond to future opportunities and risks. In this context, the strategy framework would also include trade-offs among competing considerations and require stress testing of capital allocation decisions to align investments with long-term strategy while providing for agility and adaptability.
To best provide oversight of long-term strategy, forward-thinking board members will also be investing in their own board education to best understand the future trends impacting their companies while being current on all external dynamics, ranging from the macro environment, governance requirements, regulation, societal change, technology and competition.
Providing Oversight of CEO Succession Planning
For a board this is a key fiduciary responsibility and is getting heightened focus. The external economic and political climate of uncertainty, performance issues, personal conduct and activism has caused record high levels of voluntary and involuntary CEO turnover. Across the S&P 500 in 2024 there were 58 departures, a 21% increase versus a prior 6-year average of 52 departures. Further across the 29 industries tracked by outplacement firm Challenger, Gray & Christmas, there were 222 CEO departures in January 2025 itself, a 14% increase over 194 exits in January 2024.
For the board, CEO succession is an ongoing process that starts literally the day the new CEO takes over as the CEO role is the ultimate leadership responsibility and the basis of organizational stability. Aligned with the long-term strategy, boards will be mindful of the skills required for the future success of the company along with the cultural fit of potential candidates. Boards will be focused on developing the internal talent pipeline with stretch assignments, performance assessment, coaching and visibility with the board. Boards will also be using advisors to assist with keeping a watch on possible external candidates to help make the best decision when the time is right.
Boards will make this process impersonal and objective and include the current CEO in this succession planning process, reinforcing that this is good governance and not a threat to the current incumbent.
Guiding a Robust Enterprise Risk Management and Resilience Framework
Along with long-term strategic planning and in sync with company culture, boards are increasingly focused on the oversight of risk. This includes providing frameworks incorporating the company’s risks across different horizons and across key business drivers, including strategic, financial, operational, organizational, technology, reputational, regulatory and human capital related as they set the company’s risk appetite. Scenario planning and stress testing are then applied within this framework across business drivers and time frames. Effective boards keep an eye on gray swan risks and, in particular, are using future lenses to identify signals for gray rhinos as part of scenario planning and crisis preparedness.
In conjunction with robust ERM, boards are building their resilience capabilities to plan around risk. The tools being used include business continuity planning, disaster recovery, tabletop exercises and communication and escalation decision making protocols for navigation, recovery and adaptation from disruptions as they occur.
COVID, supply chain disruptions, the geopolitical impact of tariffs and trade retaliation, political unrest and wars, escalating cyber threats from state actors and from the widening usage of AI, along with interest rate, inflation and legislative uncertainty at the macro level are examples of risks where ERM and Resiliency planning can prove vital guard rails. They enable boards to capture the strategic long- term upside amidst a rapidly changing uncertain climate.
Board Composition
As discussed, boards are overseeing a widening area of issues. Over the last 5+ years, AI, cyber, geopolitics, human capital and climate have risen to the forefront, but these issues could change based on global economic, technology, regulatory, activist and societal developments. In this constantly evolving environment, effective boards continue to focus on the T - broad based strategic, business and financial acumen along with specialized expertise in one or a few areas in their selection process. Directors are selected based on their skills, leadership and their capacity and commitment to serve the company. In this context we note that board composition is essentially set up to enable guidance of long-term strategy development on an ongoing basis and is not dictated by the flavor of the day.
If required to supplement or complement any special skill or emerging needs, good boards leverage external advisors for many of these skills. Boards also encourage and demand continual learning and education as highlighted earlier to keep their skills current.
Shareholder Engagement
As recent studies have indicated, shareholder activism is at a high across small and mid-cap companies and is expanding to large cap companies. In 2024 there were 240 activist campaigns. CEO performance, stock valuation, board composition and CEO and management compensation are the primary reasons for activists targeting companies. We are seeing activists expand their tool kids demanding capital return, portfolio simplification with divestitures and spin offs, removal of the CEO and management and board seats.
Proactively boards and management are engaging with stockholders to understand what is on their minds and to establish transparent communications and trust ahead of any potential activist situation.
Effective boards are also requiring management to “think like activists” by analyzing their operations, stock performance and portfolios and keeping a watch on movement in their stock ownership, while being mindful of SEC directives and applicable state (e.g., Delaware) corporate governance laws.
Summary
In this complex, rapidly evolving and uncertain time, effective boards are changing how they govern by doubling down on their core oversight responsibilities. They are responding to a changing external environment by proactively shaping their context and elevating company performance through resiliency, adaptiveness and future-forward thinking.