In a world where risks are increasingly complex and interconnected, the governance role of the board must evolve to embrace change, oversee the requisite level of risk taking and drive resilience and innovation rather than simply maintaining stability. This is what will differentiate board directors that successfully steward organisations over the next 10 year and beyond, from those that don’t.
The interconnected nature of risks today—whether technological advancements and disruptions, geopolitical tensions, or climate and environmental crises—means that effective governance cannot be static. It must be dynamic, proactive, and embedded in the strategic fabric of the business. In this context, boards must reaffirm their long-term stewardship role, enhance boardroom dynamics, and ensure that executive incentives align with the company’s risk appetite and long-term goals.
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The modern business landscape demands a new approach to governance. Boards must shift their focus from simply managing stability to driving long-term value creation
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Key Actions for Boards:
- Ask some simple questions: such as “who is not in the room?” with the aim of identifying gaps in knowledge or perspectives that may be hindering decision-making; and “do we reach consensus too easily?”, which may be a sign that the board may not be challenging the status quo or exploring alternative approaches.
- Ensure your board evaluation approach captures dynamics and goes beyond a self-assessment questionnaire: Review your board evaluation approach and skills matrix to ensure they assess not just that technical skills but also the culture, dynamics and stewardship skills of the board and its ability to innovate, manage change and drive long-term resilience.
- Review board training needs and board structure: Considering the pace of change, regularly reassess the skills and training needs needed on the board to help tackle today’s risks, stay ahead of future risks and harness long-term opportunities.
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Align executive incentives and risk appetite
As Board governance focuses on resilience and innovation, the question of how to balance futureproofing with risk-taking becomes paramount. This highlights a key tension: the UK’s tendency towards “safetyism” in corporate governance, which contrasts with the more risk-tolerant stance often seen in the U.S. Caution is understandable in the face of rising risks and complexity, but it also risks stifling the innovation necessary to stay competitive.
Recent trends in the UK corporate governance landscape suggest a slight easing of bureaucratic burdens, empowering boards to take more calculated risks in order to boost the UK’s competitive global standing. For example, the Capital Markets Industry Taskforce has made powerful arguments for change in this area and we have since seen influential guidelines surrounding executive compensation evolving to allow for more flexibility.
Executive compensation is a key governance mechanism for boards and today’s risk landscape requires boards to rethink how they incentivise executives to encourage sustainable value creation and calculated risks that align with long-term strategy. Early insights from the 2025 AGM season in the UK showed a continuation of bold moves in executive remuneration policy changes, largely proposed with the rationale of ‘increasing global competitiveness’. This reflects some divergence from UK pay norms with more focus on a business-first approach and perhaps greater openness to risk taking. However, it is critical for boards to thoughtfully consider the right incentive design for them, not to blindly follow market practice, whilst maintaining a view of evolving governance and investor expectations.
Key Actions for Boards:
- Review incentives alongside risk appetite: Reevaluate executive compensation structures to ensure they align with long-term company goals, resilience, and responsible risk-taking, whilst staying abreast of evolving stakeholder views.
- Prioritise materiality in incentive metric selection: Select the most material performance metrics for your business to drive strategy and long-term resilience and avoid including too metrics many which can dilute focus on core business KPIs.
- Create a risk-aware culture: Encourage executives to take a broader view of risk, considering both short-term and long-term impacts. Foster a mindset that treats risk as an enabler of growth and opportunity.
Governing in the age of uncertainty
The modern business landscape demands a new approach to governance. Boards must shift their focus from simply managing stability to driving long-term value creation, innovation, and resilience. By revisiting their stewardship role, rethinking board composition, skills and dynamics, and aligning executive incentives with sustainable growth, boards can navigate the challenges ahead while positioning their organisations for success in an uncertain world.
A version of this article originally appeared on Board Agenda in June 2025.
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