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ShapingtheFutureBoardofDirectorsandSeizingNewOpportunitiesforDevelopment

Deloitte

Introduction

Thereportofthe20thCPCNationalCongressproposedthatChinashouldbuildahigh-levelsocialistmarketeconomy,improvethemodernenterprisesystemwithChinesecharacteristics,promoteentrepreneurshipandacceleratetheconstructionofworld-classenterprises,soastopromotehigh-qualityeconomicandsocialdevelopment.Undertheguidanceofthesenewgoals,ithasbecomeanimportanttaskforChineseenterprisestofindwaystoshapethefutureboardofdirectorsthroughcorporategovernanceandgraspnewdevelopmentopportunities.ThechairoftheboardofdirectorsofaChineseenterpriseshouldhaveadeepunderstandingoftheinternationalstatusquoofcorporategovernance,learnfromtheinsightsofthechairsofoverseasboardsofdirectorsandunderstandthefutureroleofachairpersonofaboardofdirectorsmoredeeplyundertheunprecedentedchangesthroughoutthelastcenturyinordertobettertheirexecutionofthiscentralroleincorporategovernance,pavethewayforwardandimprovegovernanceefficiencyforthecompany.

Underthemodernenterprisesystem,theboardofdirectorsisthecenterofcorporategovernanceandthechairoftheboardofdirectorsistheleaderofthisboard.Thechairoftheboardplaysakeyroleinthecorporategovernancesystemandhasasignificantimpactontheeffectiveoperationoftheboardofdirectors.Inrecentyears,tremendoussocialchange,includingunpredictableeventssuchasCOVID-19andgeopoliticalturmoil,aswellaschallengessuchasdigitaltransformation,climatechange,regulatorypressureandinvestorengagement,areredefiningtheroleofthechairoftheboard.

Inordertounderstandthechangeofthegovernanceroleofthechairoftheboardandtheexpectationsofstakeholdersforthefuturechairoftheboard,Deloitte’sGlobalBoardroomProgramconductedresearchonthetheme"TheChairoftheFuture".Theresearchposedanumberofquestions,including:whatwillthechairofthefuturelooklike?Whatskills,capabilities,andexperienceswillberequiredtobeasuccessfulchair?Andhowshouldchairsoverseemanagementastheirorganizationsfacethesemanifoldchallenges?Thisresearchfocusedon16countries,namely:Australia,Belgium,Canada,China,Kenya,Uganda,Germany,India,Ireland,Italy,Japan,NewZealand,theNetherlands,SouthAfrica,theUnitedKingdomandtheUnitedStates.Morethan300chairsofboardsfromlargelistedcompaniesandprivateenterprises(includingsomefamilyenterprises)acrosstheglobesharedtheirunderstandingandinsightonrelevanttopics.

Theprogram'sannualreportFiveChangingForcesofDefiningtheRoleoftheChairoftheModernBoardofDirectorspresentedrelevantresultsfromtheresearch.Itdefinesfivefundamentalforcesreshapingthefutureroleofthechairoftheboard,specifically,organizationalgovernancethatasksthechairtoplayagreaterrole;alargersocietythat

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placehigherexpectationsonenterprises,achangingclimatethatforcesenterprisestotakeaction,externalcrisesthatencourageboardstooperatedifferently;andincreasedneedfortheboardtooperatewithdigitalefficiencyandagility.Theresearchreportpointsoutthatundertheinfluenceofthesefiveforces,thegovernanceroleofthechairisexpandingtomeetexpectationsofstakeholders,andforthechairtoplayamoreactiveroleintheforefrontofcorporategovernance.

I.UnderstandingtheCorporateGovernanceRoleoftheChairoftheBoardofDirectors

Asthecenterofcorporategovernance,thecoreroleoftheboardofdirectorsincorporategovernanceisoversightofstrategicdecision-making,inotherwords,tooverseethecompany'sdevelopmentgoalsandbusinessstrategiesandtoensuretheexecutionofbusinessstrategiesandtherealizationofdevelopmentgoalsthroughtheimplementationofincentivesandsupervisiontoseniormanagement.Astheleaderoftheboardofdirectors,thechairplaysaleadingroleintheeffectiveoperationoftheboardofdirectors,especiallyintheeffectivenessofthestrategicdecision-makingfunctionoftheboardofdirectors.

Ontheonehand,asthe"teamleader"oftheboardofdirectors,thechairhastheresponsibilitytoensurethat"teammembers"withdifferentidentities,backgroundsandexpertisecanworktogethercoherently,performingattheirbest,cooperatingsincerelyandcontributingtheirownexperience,wisdomandinsighttothemaximumextentinordertomakethebestcollectivedecisions.Ontheotherhand,thechairneedstomasterthesuperbartofbalanceandleadtheboardofdirectorstocoordinatetheinterestsofallparties.Theydothisviaconsensusandseekingbalancebetweencompetingclaimsorpotentialconflicts,notonlysupportingenterprisestopursueeconomicinterests,butalsourgingenterprisestofulfilltheirsocialresponsibilities.Thusmanagementreceivessupporttopursueitsfullentrepreneurialandmanagerialabilities,aswellassupervisiontofaithfullyperformitsdutiesandfollowtheappropriatecodeofconduct.

Deloitte'sresearchreflectsitsrespondents'newunderstandingoftheroleofthechair.Someintervieweesdefinetheroleofthechairas"theUltimateChiefReputationOfficer",indicatingthatthechairplaysakeyroleinprotectingandsupervisingthecompany'sreputation,andtheoutstandingperformanceoftheresponsibilityof"theUltimateChiefReputationOfficer"isfacingmoreandmoreseriouschallengesfrombothoutsideandinsidethecompany.Theintervieweesalsosuggestuptothreerolesofthechair:supervisor,coordinatoranddecision-makingconsultant.

Thereportstatesthat:"Thecurrentchairmustsometimesmaintainadelicatebalancebetweencompetingchoices.Theyshouldgraspthelong-termstrategicdirectionwhilenotactingbeyondtheirauthority,effectivelymanagetheboardofdirectorswhileencouragingdiscussionandexpressingdifferentopinions,providesupportformanagementwhilstsimultaneouslydaringtoputforwarddifferentopinionsonthedecision-makingassumptionsofmanagement,enhancetheparticipationofstakeholders,yetnotsuccumbtopressurefromdifferentparties."

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Duetodifferentlawsandinstitutionalsystemsrelatedtocorporategovernanceindifferentcountries,theroleofthechairhassignificantnationaldifferences.InGermanyandinmuchofContinentalEuropetheboardisorganizedintotwo-tiers,wheretheroleofthechairinthisreportisgenerallyundertakenbythechairoftheSupervisoryBoard.IntheUK,theUnitedStates,Chinaandotherunitaryboardcountries,theroleofthechairisquitedifferent.Forexample,intheUK,thechairoftheboardoflistedcompaniesisalmostalwaysanindependentnon-executivedirector,andtherolesofthechairandchiefexecutiveofficerarestrictlyseparated;intheUnitedStates,thepositionsofthechairandchiefexecutiveofficerareoftenheldbythesameperson–thisisthecaseatnearlyhalfofUSlistedcompanies.Sinceindependentnon-executivedirectorsoccupythemajorityoftheseatsontheboardofdirectors,the"chiefindependentdirector"isusuallysetupasthe"leader"ofindependentdirectors;inChina,therolesofthechairandthegeneralmanagerareundertakenbydifferentpeople,butthechairofmostcompaniesistheexecutivedirector,andthechairofstate-ownedenterprisesinChinaalsogenerallyholdsthepositionofsecretaryofthepartycommittee.

II.FiveFundamentalChangingForcestoReshapetheRoleoftheChair

Hugesocialchangesareredefiningtheroleofthechair,includingunpredictableeventssuchasCOVID-19andgeopoliticalturmoil,aswellasdifficultchallengessuchasdigitaltransformation,climatechange,regulatorypressureandinvestorengagement.Deloitte'sresearchrevealsfivefundamentalchangingforcestoreshapetheroleofthechairinanewerathatisfullofchallengesandopportunities.

1.OrganizationalGovernanceRequirestheChairtoPlayaGreaterRole

Organizationalgovernancerequiresthechairtochangethedepthandbreadthofparticipationingovernance,whichincreasestheresponsibilitiesofthechair.Asoneintervieweecommented:"Thechairoftheboardofdirectorsisnolongeranominalleaderfaraway.Youneedtoknowyourcompany.Youcan'tplayanyroleifyouonlyknowhowtoholdtheboardofdirectors".Thechairplaysagreaterroleincorporategovernance,andmainlyneedstofulfillthefollowing:

Firstly,thechairshouldnotonlyestablishandmaintainahighlytrustedrelationshipwiththechiefexecutiveofficerbasedonfrank,reliableandregularcommunication,butalsobereadytoquestiontheideasandassumptionsofthechiefexecutiveofficerandseniormanagementatanytime,ratherthanagreeunconditionally.Tothisend,thechairneedstohaveadeepunderstandingoftheenterpriseandbewillingtoinvestalotoftimeandexperienceintheenterprise.

Secondly,thechairshouldencourageandurgethemanagementtoacceleratethepromotionofkeystrategicinitiatives,especiallyintheareasofdigitaltransformationandthefutureofwork.Atthesametime,aspartofthepromotionofstrategicmeasures,thechairshouldencouragetheboardofdirectorstoprovidestrongoversightofriskandtopaymoreattentiontonetworksecurityandsupplychainrisks.

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Finally,thechairshouldplaytheroleofenterprisecaretakerandbecommittedtohelpingenterprisesselectpersonnelandcultivatecompanyculture.Thedutiesofthechairincludeprovidingoversightofcorporatecultureand,aspartofthis,assessingwhetherthecorporateculturecansupportorganizationalstrategyandpromotionofresponsibleandethicalbehavior.Onewaythatthechaircaninfluencethecorporatecultureisbyprovidingoversightofpersonnelselection.InadditiontoleadingsuccessionplanningfortheCEO,theboardofdirectorsshouldalsohelpmanagementcultivateotherseniormanagersbesidestheCEO.

2.SocietyPlacesHigherExpectationsonEnterprises

Thechangingrelationshipbetweenenterprisesandsocietyisanotherkeyforcethataffectstheroleofthechair.Thechairsinterviewedrecognizethattheyplayakeyroleinpromotingtheformationofagoodrelationshipbetweenenterprisesandsociety,encouragingpositivechangethroughconsiderationoftheenvironment,societyandgovernance(ESG),andpromotingtheparticipationofstakeholders.Deloittebelievesthiswillbecomeamoresignificantresponsibilityinthenextfewyears.

Firstly,inthecontextofrapidtransformationfromtraditionalshareholder-centeredcapitalismtoacapitalismthatcreatesvalueforallstakeholders,itwilllikelybecomenecessaryforthechairandtheboardtoconsidertheirstakeholdersasawhole,includingclients,employees,suppliers,investors,regulatorsandpolicymakers.Asonerespondentsaid,"strategymustbeadialoguewithstakeholders,notjustshareholders".Onlybypromotingtheparticipationofstakeholdersincorporategovernancecanweensurethecontinuedlegitimacyoftheenterprise–theso-called‘societallicensetooperate.’.

Secondly,chairsmustfocusontheintegrationofESGintobusinessstrategyandpromotionofanESGperformanceframework.ThechairsinterviewedsaythatESGisnolongerseparatefromthecompany'sbusinessstrategy.Commitmentsthatonlyexistonpaperandnevercometopracticalfruitionwillalwaysreflectpoorlyonthecompany'sreputation.Asonerespondentsaid,"onecanaffectthewholevaluechainbyintegratingESGintobusinessstrategy,andensuringitbecomesapartofourcorporateDNA".Atthesametime,chairsshouldurgeenterprisestoredoubletheireffortstodevelopacomprehensiveperformancemeasurementandincentiveframework,soastoencouragemanagementtobetterbalancetherelationshipbetweenprofitabilityandsustainabledevelopment.

Thirdly,chairsshouldencourageyoungmanagersandemployeestoparticipateincorporategovernance.Someboardsofdirectorsarebuilding"advisoryboards"or“nextgenerationboards”,whicharecomposedofyoungermanagersandemployees,orboardcommitteemembers,andproviding"walk-inclinics"foremployeestosharetheirconcernsandencouragethemtoplayanactiveroleintheprocessofcorporategovernance.

3.ClimateChangeForcesEnterprisestoTakeAction

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Inlightoftheoperational,regulatoryandreputationalchallengesandriskscausedbyclimatechange,moreandmorechairsputclimatechangeatthetopoftheboardroomagenda.Asonerespondentsaid,"theboardofdirectorshasledonclimate,includingassessingtherisksandopportunitiesbroughtbyclimatechange,formulatingshort-termandlong-termpoliciesandsettingspecificgoals".Deloittebelievesthatthechairscanplayagreaterroleinpromotingclimatechangeinanumberofways”:

Firstly,byhelpingthemanagementofenterprisestorealizethatclimatechangepresentsnotonlyrisk,butalsoopportunity.Asonerespondentsaid,"Ifthegovernmentintroducesacarbonpricingmechanismwithareasonablestructureandsendsaclearsignaltothemarket,itmaytriggerawaveofinnovation.Thehugeeconomicincentivewilldriveenterprisestogotothemarketanddevelopnewtechnologiestoreducegreenhousegasemissions".

Secondly,byencouragingmanagementtostrengthencommunicationwithinvestorsonclimatechangeissues.Anintervieweesaid,"Ontheonehand,investorstoldusthattheyexpectedtoseeustotakeboldactionwhendealingwithclimatechange,ontheotherhand,thiswouldcauseaninstinctivereaction:solvingtheproblemofclimatechangeinvolvescapitalexpenditure,whichwillleadtothedeclineofstockprices".Tothisend,thechairshouldemphasizetheimportanceofcommunicatingthecompany'scurrentstrategicactionsonclimatetoshareholders,includingcommunicatingwithmajorshareholdersthroughboththeannualshareholdermeetingandaregularcadenceofindividualmeetingswithshareholders.

Thirdly,bytheintroductionofaclimateexpertortheestablishmentofaspecializedboardcommittee.Onthisissue,therearecertaindifferencesintheviewsoftheinterviewees.Somerespondentssaythatinvitingclimateexpertstojointheboardofdirectorswouldhelpimprovetheboard'sunderstandingofclimateissues.Ontheotherhand,otherrespondentsbelievethatitissufficienttocarryoutclimatechangerelatedtrainingfortheboardofdirectors.SomerespondentssuggestthattheboardofdirectorsshouldestablishanESGspecialcommitteeoftheboard,butotherrespondentssuggestthattheboardofdirectorsshouldjointlydiscussclimateissues.

4.CrisisLeadershiphasBecometheNorm

Theseriesofcriseswitnessedinrecentyearshashighlightedtheneedforgreatercorporateresilienceandfasterdecision-making,aswellasastrongerabilitytocommunicatetostakeholders.Challengesmayariseatanytime,resultingintheboardofdirectorshavinglittletimetodigestfullyandunderstandeachissuebeforetakingaction,andsometimesbeingforcedtomakedecisionsbasedontheirownbeliefsandwithinsufficientinformation.Formanycompanies,crisismanagementisnotatemporarymatter,butacontinuousstateofoperation.Inthiscase,thecrisisleadershipcapabilityofthechairisofgreatvalueforenterprisestocopewithuncertaintyandprovideguidancefortheboardofdirectors.Atthesametime,thechairisalsoresponsibleforhelpingmanagementimproveitscrisisresponse.

Firstly,delegatingdecision-makingpower.Crisismanagementrequiresthechairandtheseniorleadershiptobemorehands-on,butitisalsonecessarytoallowlocal

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decision-making,whichisparticularlyimportantforcompaniesoperatinginmultiplegeographicalregions.Inordertoimprovetheeffectivenessofcrisismanagement,itissometimesnecessarytogivelocalmanagementthepowertodealwithemergenciesonitsown.However,thechairandtheChiefExecutiveOfficershouldcarefullyconsiderthemannerandtimingofdelegatingdecision-makingpower,andstrikeanappropriatebalancebetweencentralmanagementandlocalflexibility.

Secondly,improvingempathy.Nomattertheindustryorsizeoftheenterprise,thepandemichasforcedthechairtothinkmoreseriouslyaboutworkplacesafety,mentalhealthandcorporateculture.Theexperienceofrespondingtothepandemichasmademanychairsrealizetheimportanceofmaintainingempathytowardsemployeehealthandwell-being.

Finally,enhancingresilience.Acoreroleofthechairistohelpthecompanyprepareforemergenciesandempowerthecompanytopersevereintimesofdifficulty.Thechairshouldencouragemanagementtocarryoutstresstestsmoreregularlyandconsidermorescenariosandresponseplanstoassessandimprovethecompany’scashflow,managementcapability,resilienceandresponsivenesstochangingchallengesoftheenterprise.

5.TheOperationoftheBoardofDirectorsNeedsDigitalEfficiencyandAgility

COVID-19haschangedmanythingsaboutthewayboardsofdirectorsoperate,includingwhereandwhentheymeet.Thepandemicmaderemoteonlinemeetingsthenewdefault.Theadoptionofonlinemeetingtoolshasimprovedtheflexibilityofboardmeetings,whichoftenmakesmeetingsshorter,morefrequentandmoretargeted.Ofcourse,onlinemeetingsalsohavetheirlimitations.Forexample,itisdifficulttounderstandtheatmosphereofthemeetingandtocapturenonverbalinformationThechairmustalsomakegreatereffortstoensurethatdirectorsconcentrateandremainfocused.

Withtheeasingofthepandemic,offlinemeetingshaveresumed,butonlinemeetingscontinuetobeusedbecauseoftheirpracticalityandflexibility.Inthefuture,theboardofdirectorswilllikelyadoptacombinationofonlineandofflinemeetingsinordertoachievemaximumefficiency.ThechaircandiscusstheongoingaffairsoftheBoardofDirectorsthroughonlinemeetingstomonitortheprogressofwork,financialreportsandrisks.Atthesametime,in-personmeetingscanbededicatedtodiscussingissuesrelatedtothedevelopmentordirectionoftheorganization,suchasstrategy,climatechangeandtechnology,importantpersonnelissuesrelatedtodiversity,fairness,inclusivenessandexecutivecompensation.

Otherpracticesthatcanimprovetheefficiencyandagilityoftheboardofdirectorsinclude:requiringboardmembersreadmeetingmaterialsinadvance,andlimitingthelengthofmeetingmaterialstoensurethattheyconveykeyinformationconcisely.Atthesametime,byproperlysettingupacertainnumberofspecialcommitteesoftheboardofdirectorstosolvespecifictechnicalorprofessionalproblems,itcanalsosavetheboardofdirectors

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fromthetroubleofdealingwithdetailsandimprovetheoperationalefficiencyandagilityoftheboard.

III.EightSuggestionsfortheFutureChairs

Inthiseraofgreatchange,itisnoteasytobecomeaneffectivechairoftheboardofdirectors.Thechairneedstoshowunprecedentedleadership.Throughthisresearch,Deloittesummarizeseightleadingpracticesofbeingagoodchair:

1)Establishingarelationshipoftrust.Whilemaintainingindependentthinking,oneshouldbuildandmaintaintrustwiththeboardofdirectors,managementandallstakeholders,especiallytheCEO.

2)Prioritisinglong-termdevelopment.Achairshouldunderstandandfocusonitemsthatreallymatter,andneverwasteenergyontrivialwork.

3)Understandingtheenterprise.The