The Future of the Virtual Board Room
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February 10, 2021 | National Association of Corporate Directors
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Thanks to Andrew Lepczyk and Barton Edgerton
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Since the beginning of the COVID-19–induced lockdowns, there has been no shortage of experts forecasting drastic shifts in the way that work gets done—including the work of the board. In the second half of the year, NACD surveyed 749 directors to better understand the impact of COVID-19 on corporate governance. Although there were initial challenges in adapting to a virtual working environment, directors were able to continue to govern effectively. Directors reported major shifts in the role that digital technology played in corporate governance, suggesting that the virtual setting for board meetings will be more popular following the pandemic. This increased adoption could show up first in committee meetings in the near term, but long term, it has the potential for increasing adoption for full-board meetings as directors become more comfortable with the technology.
Most of these changes are due to the abrupt shift to working remotely, sparked by the pandemic, and the relatively seamless ability for directors, and society as a whole, to adapt to these new circumstances. Recent survey data from NACD confirms this effect in corporate governance, suggesting that the adaptation of working remotely is here to stay.
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Directors Adapted Quickly To The Virtual Environment
In the beginning of the COVID-19 pandemic, boards saw abrupt change in their board operations with no way to go back. This proved to be a challenge, with technological preparedness being a weakness of many organizations. According to the survey, 36 percent of respondents listed their organization’s
digital competency as a weakness as opposed to a strength, and 27 percent described their organization’s technology infrastructure as a weakness.
But despite this baseline expectation, many directors were surprised by their ability to adapt and adapt quickly. While NACD learned from conversations with directors that in the beginning of the lockdown many boards and IT teams were nervous about the rollout of virtual board work, directors adjusted to the changing circumstances.
Technology Creates Biggest Challenges For Directors
During the pandemic, directors reported that the challenges posed by the virtual environment were largely operational in nature and can be addressed through technology that makes virtual meetings more efficient. When asked what the top three overall challenges were for boards in responding to the COVID-19 pandemic, 47 percent of directors responded with “ensuring that virtual board meetings were as effective as in-person meetings.” Improvements in the efficiency of virtual meetings may ultimately lead to their wider adoption.
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Digging deeper, we find that 72 percent of directors responded that it was a challenge losing nonverbal communication between directors, while 30 percent responded that it was tough facilitating questions and answers. On the other hand, just under 14 percent said that background noise was a challenge, and only 19 percent said keeping directors attentive throughout the whole meeting was difficult.
This shows that the biggest problems can be fixed. With better communication platforms, the lack of nonverbal communication can be mitigated, if not completely resolved. Furthermore, the challenges of a virtual environment which were outside of the board leader’s control were not significantly problematic—the real challenges were operational issues that can be solved through better technology. There is a case to be made that with better technology, there will be better communication and less-challenging virtual board meetings.
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Despite these challenges, boards were still effective. The technology worked well enough that directors’ efforts were not significantly hindered by having to meet in a virtual setting. Ninety-four percent of respondents said that they were able to govern effectively in the new environment, demonstrating that the shift to virtual meetings did not interfere with the board’s ability to perform their duties. This would suggest that—despite a number of setbacks and the inability to meet in person—directors were able to adapt and felt able to govern effectively. On the other hand, only 41 percent of respondents agreed that virtual meetings are as effective as in-person meetings; 50 percent of respondents disagreed.
These seemingly contradictory data suggest that while the meetings were effective in helping directors to get their work done, ultimately, directors felt that they were not as productive as they could have been. It could also mean that directors are overestimating the value of in-person meetings, and that virtual meetings are satisfactory in helping directors to govern effectively. This points to a conclusion: while the technical issues that disrupt the facilitation of the meetings makes them less effective than they could be, the meetings are still “good enough”—or perhaps virtual meetings work better for some aspects of corporate governance than they do for other aspects.
Even though directors felt that virtual meetings weren’t as effective, they acknowledge that digital communication is here to stay, as evidenced by the 90 percent who answered that they think digital board engagement will be a helpful tool for board operations moving forward. We feel that this paradox could be remedied or even eliminated by increased innovation in digital technology.
Virtual Meetings To Be A Greater Force In The Future
NACD surveyed directors about whether or not their board plans to utilize virtual meetings following the crisis, and the results show that virtual meetings will have more staying power at the committee level than at the full-board level, at least initially. Sixty-five percent of directors expect at least 20 percent of future board meetings to be virtual, and 13 percent expect at least 60 percent of board meetings to be virtual.
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Percentage of Virtual Meetings Post Crisis
These findings show how much of a shift to virtual board work we might expect to see in the future. Even if just 1 in every 10 boards holds a majority of their meetings virtually, it would lead to a drastic shift in board operations. Seventy-six percent of respondents say that they expect that at least 20 percent of committee meetings will be virtual in the future, with 30 percent saying that at least 60 percent of committee meetings will be virtual.
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Furthermore, in a May 2020 COVID-19 Pulse Survey, NACD found that 54 percent of responding directors thought that the changing way in which work gets done would be one of the key influences that most impact the post-recovery period, and 32 percent said that the acceleration in digital technology would be yet another.
Directors foresee that virtual meetings will be more common at the committee level than they will be at the full-board level. As with full-board meetings, even a modest change in the frequency of virtual committee meetings would likely make them a factor in the boardroom for years to come.
While the extent to which virtual board meetings will become an accepted and effective tool for corporate governance is unknown, future board meetings are likely to feature more virtual communication. NACD survey data showed that directors were able to adapt in real time to changes in digital communication; that the challenges posed by digital technology that directors face now can likely be remedied with better platforms; and that committee work will see more virtual meetings, which may influence the frequency of virtual full-board meetings.
The pathway forward to greater adoption of virtual communication methods may first chart its way through committee meetings, where the technology will first be introduced and then tweaked so that it becomes more conducive to efficient meetings. From there, full boards, which are largely made up of those same committee members, could apply this efficiency to their meetings, as well.
Every board will not stay virtual following the crisis; however, the trends point toward greater adoption, both in the near term and in the longer term.
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