Governance Playbook
Shaping the board of the future

How AI, emerging ESG issues and a need for modern skillsets are driving change for board members

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Environment, social and governance

'It’s not just AI, it’s everything that’s changing’

Thought leadership:
The future of the boardroom

Introduction

In a world where the rate of change is accelerating, boardrooms risk being left behind if they do not equip themselves with the skills needed to meet future challenges head on.

Tomorrow’s boards will be judged by their ability to adapt to the revolutionary power of AI, to evolve alongside a shifting sustainability landscape and to learn on demand.

Companies that want to succeed in this new era need oversight from boards that are resilient, are equipped with the skillset to interpret AI-influenced data and have the confidence to use their expertise to offer wise guidance.

This report draws on the expertise of hundreds of governance professionals and direct insights from general counsel and company secretaries to identify critical characteristics in future boardrooms and areas to prioritize to stay ahead of the curve.

Supercharging board agility

The complexity of doing business is only expected to increase and boards will need to adapt if they want to remain effective.

That means changing the criteria for what makes a good board member. For example, understanding AI is just as vital as knowledge of domestic politics.

Governance Intelligence research shows that boards will need to be armed with a diverse array of individual skills in order to meet their future obligations. Governance professionals from more than 200 listed companies identified a variety of different skills as being critical to a board's success now and in the future. Either training existing board members or appointing individuals with these skill sets is seen as essential to good governance.

In addition to the skills identified via Governance Intelligence research, the Nasdaq 2024 Global Governance Pulse survey found that AI and cybersecurity skills are top areas for boards seeking to diversify and enhance their composition and align strategically with the adoption of AI and other technologies.

Nasdaq’s survey findings revealed that 35 percent of board members, executives and governance professionals identified that AI and machine learning skills and experience would most enhance their board’s composition and ensure alignment to the organization’s strategy. Proficiency in these areas is necessary for boards to evaluate the impact of technology and AI adoption on organizational growth.

Governance Intelligence research:

Issues listed by 60 percent + of respondents as very or extremely important

Don’t forget what got you here

The demand for boards to be more diverse and agile in the future does not mean that the traditional requirements of good directorship will disappear. Some 45 percent of the companies surveyed by Governance Intelligence ranked corporate governance as extremely important, the most of any subject area.

Compliance and regulation was rated as very or extremely important by 80 percent of respondents and executive compensation by 74 percent. Having a high-level understanding of economic issues is also seen as being of continued value, with 34 percent rating it extremely important and another 49 percent rating it as very important.

The areas in which businesses spend their training dollars reveal the most pressing skills gaps, but research shows that there is not broad consensus on the importance of upskilling in particular areas.

According to Governance Intelligence data, only close to half of boards are being trained on corporate governance (56 percent), ESG issues (53 percent) or compliance and regulation (53 percent).

As phishing scams and other areas of technological subterfuge become more advanced, it’s perhaps no surprise to see that cybersecurity is the most common area of training being delivered to board members. But coming in at only 63 percent, according to the survey data, that means more than a third of the businesses are choosing not to educate their boards on cybersecurity at all, creating a potentially massive area of vulnerability.

Findings from the Nasdaq 2024 Global Governance Pulse survey illustrated alignment with topics that were ranked for continuing education. According to Nasdaq’s survey findings, board members, executives and governance professionals said that cybersecurity, data privacy and information security (38 percent), industry trends (34 percent) and corporate governance (31 percent) are the top three areas of importance for continuing education.

Key takeaways

The pace of change will require boards to think on their feet
The fundamentals of good governance are expected to persist
Training data shows no firm consensus on upskilling for the future.

Better boardroom training

A consistent theme in Governance Intelligence’s research is the need for more targeted education, speaking to the increased demand for deep strategic knowledge of emerging trends and the growing range of topics that boards must take a view on.

Data shows that only 75 percent of governance professionals feel that their boards receive the training they need to fulfill their duties effectively.

A training gap?

Governance Intelligence data shows that companies train their boards less as they grow. Companies with a small market cap spend an average of 13.4 days training their board members, but that figure contracts by more than 70 percent for mid and large cap companies, who only spend between 3.5 and 3.8 days a year on board training. The rate rises modestly to 4.8 days for mega cap firms.

A greater emphasis on training at smaller companies may reflect the fact that larger companies attract more experienced board members. With the required skill profile set to expand radically in the coming years, however, companies with the concept of board training already embedded in their culture will find themselves better equipped to adapt to a world that moves at pace.

As training grows in importance, forward-thinking companies are looking to embed the idea of development more deeply into the way their boards operate. Here’s what individual respondents are saying:

‘Use the budget set aside... on high-valued areas as identified by senior management based on corporate strategy and the marketplace.’
‘Require a minimum number of courses/days of training each calendar year for board members' and 'require at least one course to be related to the committee(s) the board member sits on.’
‘Establish four interim virtual meetings with an emphasis on information exchange.’
Close the feedback loop by ‘engaging in two way conversation to elicit from our board members how they apply their training to their service on our board.’

Key takeaways

Make training more targeted, aligning it with business priorities and future risks.
Enforce training in a meaningful way, through guidelines or role requirements.
Get feedback on how training is deployed to iterate and improve programs.

Environment, social and governance

The concepts of diversity and sustainability have firmly taken root in Western business practice. Some 80 percent of respondents identified the presence of at least one board member with expertise in ESG factors to be of very or extremely high importance.

ESG is broadly depoliticized in the boardroom, experts say [see ‘It’s not just AI, it’s everything that’s changing’]. Instead, it is a key weapon in a board’s risk management arsenal - putting in place guidelines to help a company manage environmental threats, avoid staffing issues and keep its governance in check.

Globally, jurisdictions have been stepping up their ESG compliance requirements and major funds will often demand an audit of a firm’s sustainability credentials before they invest. Having an understanding of concepts like 'double materiality' and 'impact investing' are seen as critical for the boardroom of the future.

Boards will also need to be able to look inward. More than 60 percent of governance professionals told Governance Intelligence that there should be at least one appointee with expertise in board diversity, a sign in itself that boards will be expected to display a wider range of specialist skills than in the past.

Cybersecurity

There is an increasing need for boards to understand the risks posed to their companies from cyber attacks to ensure that they hold leadership to account. Cyber incidents have shown that companies operate in a business landscape impacted by ransomware attacks.

Black hat operators – malicious hackers who exploit IT systems for illegal or harmful purposes – most commonly gain access to a company’s systems through so-called 'phishing' emails that pose as harmless messages that convince staff members to download files or click on malicious links.

The risks of phishing are also rising in line with the growth of AI. Large language models have given hackers a boost in their ability to craft deceptive emails that may encourage people to drop their guard and allow external access to company systems. AI can even be prompted to write a phishing email that would particularly appeal to a senior executive or appear to be from a colleague.

Having an ill-equipped board means that the company faces financial, reputational and significant legal risk. On the other hand, boards that are well versed in cybersecurity can provide distinct competitive advantages: their companies can innovate more confidently, enter new markets with stronger compliance and ensure customer loyalty, to name three examples.

Board succession planning

Having an effective succession plan in place is key to ensuring senior leaders are properly and swiftly replaced upon departure. The Nasdaq 2024 Global Governance Pulse survey showed that 46 percent of boards have a CEO succession plan that includes both an emergency provision and a long-term plan, while 21 percent only have an emergency CEO succession plan.

However, only 58 percent of companies surveyed by Governance Intelligence said they are confident in their succession plans, with governance professionals pointing to diversity risks, a shortsighted view of potential replacements and a lack of time to evaluate future candidates as major hurdles in crafting effective plans.

Hiring committee agendas should include the creation of skills matrices to help target individuals that will fill skill gaps, set timelines and routinely bring forward potential candidates.

Companies should also move away from a policy of total secrecy when it comes to succession planning.

Having a more transparent approach leads to a more informed internal talent pipeline and, ultimately, future leaders will be more equipped to meet the needs of a future executive role if they understand what skills they need to develop.

There is also evidence that more companies could take account of the way they recruit new directors to populate their boards. In Governance Intelligence’s research, only 55 percent of companies said they review the success or failure of the board recruitment practices.

What governance professionals say about succession planning

Lisa Keith, general counsel at Steve Madden

LK: 'Ideally there would be a broader set of potential successors considered. At the moment, it is very much focused on the board's existing network and not a broader set of potential candidates.’

'I think this is one of the most critical responsibilities of the board and for the executive team. We do not put enough time and effort into identifying employees at senior management level to provide them with development plans in order to have the bench we need.’

'It’s not just AI, it’s everything that’s changing’

Lisa Keith, general counsel at fashion giant Steve Madden, gives her insight into the way boardrooms will need to change to meet the demands of an evolving world.

How does a company and its board best position itself to deal with the increasing pace of change?

LK: It’s a lot to keep up with and it’s not just AI, it’s everything. I think the best thing really is to be consistent. We know who our customers are and what our values are. They don’t change based on what’s going on in the world. I think it’s important for boards to understand the company that they work for, the values that it stands for and what really drives the business.

What are the key skills that board members of the future will need to develop?

LK: I think you’ll have to have a lot of agility. Board members aren’t necessarily in the day-to-day of things, but I still think that agility is important so that they can give the right guidance and advice.

Technology is becoming increasingly important. As a board member, at least understand all of this, even if you can’t do it yourself. On AI, there’s so many uses and as a board member you should be bringing that to the company and asking What are you doing with this?

Are the concepts ESG represents already embedded at board level?

LK: I think they are. We’re not in the business of solving all of those problems – we manufacture products – but we try and do it in a way where we can reduce our impact.

It goes back to consistency. We’ve had a corporate social responsibility (CSR) committee on our board for a very long time, so that doesn’t change for us. It didn’t get dismantled because that’s not as [politically] pressing as it was. For us, the mandate hasn’t changed. When you get hit with tariffs and all the things going on, your priorities change because you’re trying to keep the business afloat, but [ESG] doesn’t come off the list.

Do you think more could be done in terms of training for board members?

LK: I don’t think everybody takes advantage of what’s available. I find that some of our retired board members really go to the training, because they have the time. There’s a push to have a retirement age [for boards], but I find that some of our older board members are the ones who like learning the most.

It’s on the company to make the training opportunities available and clearly communicate where they are and how to get them, and then it’s also on the board member to really take the time and figure out where they want to focus.

Artificial intelligence

AI is on course to become irreversibly intertwined with our everyday lives. In business, digital agents are already taking minutes or running compliance chatbots, and much grander plans are being devised in bluesky tech meetings around the globe.

As we have seen in this report, a solid understanding of AI is becoming increasingly important at board level, but how will the technology be used in the boardroom itself?

Data science

AI needs data to function. In the era of big data and machine learning, companies are already well stocked with facts, figures and intelligence to train their smart new systems. This ties into the unique need for board oversight of a company’s entire operations. It’s a need that also flexes with the situation: where a summary may suffice in some cases, a forensic examination may be needed in others.

Board members often receive hundreds of pages of documents to read before each meeting. AI can slim down the word counts for time-pressed board members and help point to the way to the most critical information. Governance teams are increasingly using the technology to produce executive summaries of these documents overview that allows board members to quickly grasp essential information.

Board members are enthusiastic about this changing dynamic. 'Make us informed and turbocharge what we’re doing,' said Julia Valentine, a board member at the Digital Evolution Institute, speaking at a recent Nasdaq Future of the Boardroom Forum. 'We know how to handle new tech and risks. We know how to handle new things that come out of left field.'

Just getting started

AI’s role supporting boards in dealing with data is in its early stages, but technologists are already thinking about what comes next.

'Copilots' or AI assistants – which already exist in a basic form – will soon learn and tailor their advice to suit the specific needs of a board member. Future copilots may be able to recontextualize information by understanding the background of the individual it supports. This means that board and committee meetings may not only cross language barriers but also cultural boundaries.

Technology leaders have also theorized that AI could become integral to vetting and training new board members. They project that AI could craft a realistic boardroom simulation that would allow new appointees to flex their expertise in an artificial scenario and then offer feedback after the session.

Tell me why?

With the growing use of AI comes a risk of over-reliance on technology. While a practical understanding of AI is a high priority for the board of the future, good governance will dictate that a company has processes in place to understand why their AI models make the decisions they make.

Moreover, the AI-literate regulators of the future will likely demand AI explainability from business leaders, putting the onus on board members to pressure company leadership to have a process in place to understand why a particular model produced its output.

Key takeaways:

Board members will be expected to not just understand AI, but use it too.
New AI tools are allowing board members to shortcut intelligence gathering.
As AI becomes integrated in a company, it demands more board oversight.

Conclusion

The leading boardrooms of the future will be equipped with the skills to interpret the rapidly evolving business landscape. They will also need to be primed to keep pace with technological advancements and align with regulatory shifts as they reshape what it means to be successful. As outlined at the beginning of this playbook, as the rate of change accelerates boards will be in increasing danger of being left behind if they do not equip themselves to meet future challenges.

In order to develop resilient, appropriately skilled and confident boards in the future, here are some next steps for governance teams to consider:

Embed a culture of training so that board members are ready for tomorrow and primed to learn about upcoming developments
Make ESG more than a tick-box compliance exercise and build boards that understand how it can be leveraged to enhance a company’s culture
Ensure that boards dedicate the time needed for succession planning and that they do not underestimate a well-informed internal pipeline
Appoint or upskill board members to ensure they are asking the right questions about technology, particularly cybersecurity and AI.