Corporate boards today face challenges more diverse and complex than ever before, according to Kulvech Janvatanavit, Chief Executive Officer of the Thai Institute of Directors.
"Technological change, digital disruption, IT security, climate change, demographic change … boards need to know more than ever before," he said. "Directors need to monitor the business environment closely. Speak with management often. And understand closely what will affect the business."
Next week, the IOD will announce the winners of its Board of The Year awards, highlighting the best-performing boards among listed companies.
The competition, now in its eighth year, has been adjusted to accommodate changing expectations and demands by stakeholders and the capital market.
Mr Kulvech said the IOD this year has broadened the scope of the competition, asking institutional investors to give input in the selection process.
Categories have also been broadened to include small and medium-sized companies, as well as a new "Rising Star" group for newly listed companies and a special award recognising "Visionary Boards".
Mr Kulvech said that beyond quantitative measures such as corporate governance ratings and shareholder returns, the judging panels gave high importance to the question of boardroom behaviour.
"How well do the directors understand the business? Do they play a role in helping management set strategy? Does the board have members with knowledge across a range of disciplines, sufficient to meet the company's needs in the future," he said.
Chaiyawat Wibulswasdi, the chairman of the Stock Exchange of Thailand, agreed that the pressure faced by companies to adapt is greater than before, a task that is central to the role played by board directors.
"I think in the past, there were many companies that might meet four, five times to take a look at the financial statement and think that their job is done," Mr Chaiyawat said. "But going forward, this can no longer be the case. We will see more proactive boards, boards that look forward and take the initiative to help drive performance."
Company boards play a critical role in setting strategy and operating plans, which Mr Chaiyawat today said needs to incorporate issues such as sustainability, innovation and digital technology.
"It's no longer enough that boards are comprised of just people with knowledge of finance, HR or business," he said. "Now company boards need people who understand sustainability, IT or innovation."
Pakorn Peetathawatchai, president of the Stock Exchange of Thailand, agreed, saying that digital transformation, digitalisation and business transformation are the three broad challenges facing every organisation today.
"Data is crucial, whether it's collecting data, analysing data and understanding customers," Mr Pakorn said. "And now, using people to analyse data simply isn't fast enough, so we have artificial intelligence technologies to help."
Digitalisation, meanwhile, comprises how organisations can automate and overhaul their business processes to improve efficiency.
But with greater openness and flexibility through adoption of technologies such as AI and cloud computing comes higher risk from cyber-attack, Mr Pakorn said, an issue boards need to comprehend and help in striking a balance.
Finally, board directors need to understand how their business model will change in the future to cope with changing market conditions and demand.
"Take PTT and consider how much of their revenue now comes from Cafe Amazon, or SCG, and how chemicals has now overtaken cement in revenues," Mr Pakorn said.
He said board directors don't necessarily have to know in detail complex subjects such as IT security.
"The job of directors is to ask the right questions that push management to find answers," Mr Pakorn said. "Directors don't have to have solutions for management. But they should have questions, where if this happens, what next? How will [management] adapt? How will you change? What are the risks?"
Mr Chaiyawat said overseeing not just strategy, but execution and implementation, is also a critical board responsibility.
"Directors need to have the courage to take action or push new initiatives, whether it be changing the business model, undertaking a digital transformation programme or setting up a new subsidiary to spearhead new innovations," he said, adding that a close relationship between directors and management is critical for organisational success.
Mr Kulvech said one crucial characteristic of high-performing boards is trust.
"Boards that can perform their role well are those which trust management and where management trust the board," he said.
Trust, Mr Kulvech said, results in better engagement, information flow and openness between management and directors.
Teamwork is also essential. Mr Kulvech said the Board of the Year awards are aimed at high-performing boards, not individuals.
Effective company boards, he said, have a "work culture that puts the organisation first, works closely with management, understands the business well, and raises questions that push management to think".
Mr Pakorn said the Board of the Year awards aim to identify leading examples of excellence for others to follow.
The SET in particular is looking to ease the regulatory cost of ESG (environmental, social and corporate governance) reporting to help small and medium-sized companies.
Mr Pakorn noted that 19 SET-listed companies are currently included in the Dow Jones Sustainability Index, the highest number among Asean countries but still just a handful of the 712 listed Thai companies overall.
In 2015, the SET launched its Thailand Sustainable Investment programme to help recognise companies with the best ESG practices. Last year 73 companies were listed.
"In the future, corporate governance or ESG will no longer be something just nice to have, but rather will be something that you need to have," Mr Pakorn said, adding that institutional investors such as the Government Pension Fund are increasingly focusing on sustainability and ESG for any company identified as a potential investment.
Mr Chaiyawat said expectations for companies to have a commitment towards ESG and sustainability are also rising from trading partners, customers and even employees.
"The competition for talent is rising each day, and today's employees have no qualms about changing jobs often," he said. "If an organisation is not strong, people don't want to stay."
For the IOD, Mr Kulvech said encouraging directors to look beyond form to substance is the main task.
"The role and duty of directors is actually broader than just to their companies. If our companies are sustainable, but our society, our consumers, our suppliers or communities are not, then the country will not be sustainable," he said.
"A company director is not just a title, but a person who is undergoing a journey called corporate governance," Mr Kulvech said. "You need to learn, relearn and unlearn constantly."