Board of Directors Governance: Best Practices for a Virtual World

COVID-19 has changed so many aspects of life, and corporate governance is no exception. From refocusing attention on all matters ESG-related to necessitating a shift to virtual and hybrid meetings, the last year has seen companies pivot and adjust in an agile manner. But it is becoming more obvious as time goes on that we may never go back to what was ‘normal’ in 2019 and that we should embrace the changes going forward. 

“As we pass the one-year mark of the global pandemic, it’s becoming clear to many boards that a “return to normal” in the coming months is less likely than a shift to a “new normal”—one that involves a hybrid approach of remote and in-person governance.” 

The publication continues to say about remote meetings that,

 “Before the pandemic, if you dialed in virtually instead of attending an in-person meeting, it was frowned upon. Now, however, this stigma is disappearing, and will likely continue to disappear after the pandemic ends.”

At the same time, CSR Europe reports that,

 “Coronavirus consolidated ESG investment as the fastest growing area in finance, it also highlighted the methodological weaknesses in companies’ ESG reporting practices.” 

The body states that standardising ESG metrics and reporting is a must as the union emerges from the crisis. Indeed, the European Commission is already working on new regulatory technical standards because “competitive sustainability will contribute to the COVID-19 recovery and to the long-term resilience and development of companies.”

So, what are the best practices for a board of directors’ governance in a post-COVID world? This article looks into how boards can adapt and thrive.

Benefits of virtual governance

With virtual governance set to be a staple of future business life, here are the advantages that it offers:

• You can cut costs on travel and accommodation, as well as on printing and mailing of board papers and other correspondence when holding virtual meetings using a board portal.
• Virtual environments mean that directors must wait their turn to speak and make fewer interruptions due to the nature of the technology. This allows everyone to have their say and be heard.
• For meetings with remote attendees, it is necessary to be more thorough in structuring and preparing the topics for the meeting, ensuring all documents are sent out well in advance. This allows attendees to be fully informed and more efficient and productive in meetings.
• It is more environmentally friendly to allow directors to attend from home or their office. Cutting down travel and production of physical documents contributes to a reduction of CO2 and waste.
• With members able to join the meeting from anywhere, a virtual or hybrid event can increase meeting attendance. This improves transparency in public companies by allowing more shareholders the chance to witness the event. 
  
  

Board governance best practices for a virtual world

Create a virtual meeting room

A virtual meeting room is a collaborative space in the cloud where you can hold your meetings. You need to consider the technological requirements, security aspects and usability of the solution you choose. Besides featuring all of the functionality you need, it should also enable you to run your meetings in a way that meets all of your requirements. 

Using a board portal like iBabs allows you to create a virtual meeting room that is specially designed for security, collaboration and efficiency. Such technology can be an invaluable resource in going virtual.

Distribute board papers online

For board meetings, the more prepared your executives are, the more informed their decisions will be. In addition, the more efficient the meeting will be, due to members asking fewer questions seeking clarifications, as they will already have many of the answers that they need. Distributing board papers online is key to achieving these goals, whether the meeting is online, in person or a hybrid setup.

Using an online system, you can upload the relevant documents such as the meeting agenda to the cloud, where every director has access through an app on their device. If you need to adjust or update any of the papers, you can make the change in the app and all members instantly receive the latest version. They can also annotate documents, suggest edits and work together on strategic planning to ensure everyone is fully informed before the meeting.

There is no need to print physical documents, send them out, reprint any amended papers and send those out again. This saves time for the employees tasked with that job, limits their contact with potentially contaminated shared equipment during a pandemic, cuts costs for the company and reduces the business’s carbon footprint.

Secure document exchange

When exchanging documents between stakeholders, you need to consider the requirements of the local laws, your company policies and also the General Data Protection Regulation (GDPR). The software you use should adhere to the highest security standards to ensure that documents can only be accessed by the people who have the right to do so. The essential features to look out for are 256-bit AES encryption, in-transit and at-rest encryption and compliance with international information security standards such as ISO 27001.

Enable electronic signing

One of the concerns that some businesses have about carrying out good corporate governance online is ensuring their decisions are legally binding. Thankfully, you do not need a traditional handwritten signature to formally accept the contents of a document. 

Electronic signatures can have the same power as their handwritten counterparts when they meet certain requirements set out by the eIDAS Regulation of 2016. This means that you can work remotely and minimise contact with colleagues and clients.

The regulation specifies three different levels of authority for e-signatures. Out of these, only a Qualified Electronic Signature (QES) has the same standing as a wet signature, due to the encryption protocols that are used to ensure its security. With a QES, the digital fingerprint of the signer is checked and verified to link solely to them. If the signatory disputes the fact that it is their signature on the document, the burden is on them to prove they did not sign. With the less secure forms of signature, although still legally binding, if there is a dispute, the issuer of the document must prove the signer was who they claimed to be.

Choose between hybrid or virtual AGMs

In the past year, many countries across the European Union enacted laws to allow more freedom for companies to run fully virtual or hybrid AGMs as a result of coronavirus social distancing guidelines. In Germany, for example, the government adjusted the Stock Corporation Act in March 2020 to allow fully virtual AGMs for the first time.

During the pandemic, many businesses took their AGMs entirely online or held hybrid events. Hybrid events allowed for social distancing measures to be in place thanks to reduced physical attendance due to many shareholders watching and voting remotely.

In the future, you may decide to offer the option of attending in person for your next AGM or to keep it entirely virtual.

Your decision could be influenced by the laws in your jurisdiction or the particulars of your company’s articles of association. It might also be influenced by your shareholder base and it is worth engaging them to ascertain the most favourable option. Ensuring the highest attendance for your AGM is important in keeping the board accountable.

A solution like Company Webcast allows you to choose between streaming your AGM live from its physical location, gathering a selection of executive officers in a studio with others joining online or having all executives and other stakeholders take part remotely.

Digitise executive evaluations

Executive evaluations are still a hugely important element in maintaining accountability. These executive sessions should not be something that is forgotten about due to work continuing virtually during the COVID-19 pandemic. On the contrary, it’s best to move the executive evaluation process into a digital form as well.

Utilising online forms and questionnaires, businesses can collate responses from individual board members and CEOs during board virtual evaluations, based on the questions that are important to their organisation. Here is a template of a digital executive evaluation form that you can use for a start.

Accelerate director training

Coronavirus has left us with a volatile business environment and the role of the board in steering the organisation towards calmer waters has never been more important. This responsibility brings with it pressure and the need to be open to learning new skills and competencies. Although there is chaos, there are also opportunities, as long as directors receive adequate training and guidance in order to take advantage of new ways of doing business. 

For example, digital transformation and Robotic Process Automation (RPA) may be suitable topics for director training because they are closely related to the survival of many companies in the coming years.

Plan virtual director onboarding

Many boards dedicate a lot of time maintaining oversight on board composition. Whether this means the nominating committee are looking to increase diversity or just that they want to expand the directors’ skill sets. This quest for a more relevant and diverse board should not stop just because it needs to take place online.

Certainly, the buddy system used for new board members is more difficult to fulfil when meetings take place virtually. There is less opportunity to pick up on the subtle physical cues a new member is displaying. Their buddy, therefore, has to build a strong and open relationship with the new director so they can have a frank and constructive debrief following a board meeting.

The old way of working, where new directors would meet their buddies and other colleagues face-to-face may well have been an easier situation in which to bond and to perform orientations, but if virtual meetings are here to stay, you must plan virtual onboarding for members who may never have met any of the other directors physically before. This will become a more common occurrence due to the changes created by the pandemic.

Prioritise ESG performance

Investor interest in the ESG performance of issuers has accelerated during the coronavirus pandemic, as shareholders look to strategise their investments with sustainability in mind. The pandemic has thrown into sharp relief the potential consequences of other global crises such as climate change.

Jean-Xavier Hecker and Hugo Dubourg, Co-Heads of ESG & Sustainability within J.P. Morgan EMEA Equity Research report that,

 “Over the long run, COVID-19 could prove to be a major turning point for ESG investing, or strategies that consider a company’s environmental, social and governance performance alongside traditional financial metrics.”

At the same time, the European Commission is in the process of formulating its Regulatory Technical Standards of the Sustainable Finance Disclosure Regulation (SFDR) to harmonise the reporting of ESG metrics. It is important to pay attention for organisations to stay up to date with developments on this matter.

When releasing the draft standards, Steven Maijoor, chair of the European Supervisory Authorities joint committee, said,

 “The significant set of rules issued today provide a strong basis to improve ESG reporting and combat greenwashing. They strike a careful balance between achieving common disclosures across the range of financial products covered by the SFDR and recognising that they will be included in documents that are very diverse in length and complexity.”

Your ESG rating could become one of the most important elements in your attractiveness to investors going forward.

References and further reading

• Draft Regulatory Standards for ESG Reporting in the EU
• An Easy Guide To Understand Digital Vs Electronic Signatures
• Choosing The Right Board Management Software
• Virtual AGM Case Study
• Typical ESG criteria