Over the last 5 years we’ve seen increasing trends in corporate governance, namely:
- greater stakeholder expectations of boards and directors (despite the notion that directors are non-executive and independent)
- increased personal liability for directors and officers
- more active regulators, shareholders and stakeholders
In 2025 these trends are likely to continue to increase.
In addition, the introduction of mandatory climate reporting for many Australian companies commencing from 1 January 2025 represents the biggest change to corporate reporting in decades.
So how should boards operate in this environment in 2025?
Our view is that high performing, purposeful boards will need to achieve the right board balance in four key continuums.
Strategic versus operational
- Boards will need to consciously stay at the strategic (governing) level and resist the temptation to move into the operational (managing) function
- Where circumstances require a board to be more operational (for example, during a crisis), they should seek to quickly re-calibrate back to their governing role.
Risk versus opportunity
- Boards are required to identify and ensure that strategic risks are appropriately managed. However, to ensure company growth, boards will need to balance the focus on strategic risk with the flipside of actively pursuing opportunity.
Board and management relationship
- Boards need to work collaboratively with management to achieve purpose. On the one hand boards need to act as a support and mentor for management with directors lending the benefit of their skills and experience.
- However, boards can’t always be ‘cheerleaders’ of management and need to balance this with constructively questioning and challenging management, and holding them to account. In essence, this is the key way by which directors perform their duties.
Board dynamic
- The underpinning concept of high performing boards is that directors work collaboratively in bringing the best of their skills, experience and diversity so that ‘the whole is greater than the sum of the parts’. However, boards need to ensure that the aim to work collaboratively doesn’t result in an environment of ‘board groupthink’ or a board room where it isn’t acceptable or safe to challenge each other. Rather, the aim is for the board to have a dynamic which empowers directors to constructively and courageously challenge each other (as well as management).
A good reflection for boards at the start of the year is to ask these questions:
- Where does our board currently sit on each of these 4 continuums?
- Where does our board want to sit on each of these 4 continuums?
- How will our board achieve the right balance in 2025 through its composition, structure, processes and dynamics?
**Nothing in this article should be construed in any way whatsoever as legal advice. It is the reader’s responsibility to obtain expert legal advice on any issue which requires a professional legal opinion.
Kerryn Newton
Chief Executive Officer
