Shadow boards: what are they and how do they apply in the corporate SA context?

Covid-19 pandemic has resulted in a shift in workplace culture, forcing organisations to embrace digital transformation and adapt to new ways of working in the context of the fourth industrial revolution.

Such advancements necessitate changes to the skill sets required from the workforce, and the way firms provide their products and services to clients.

Corporates have long known that the younger minds in organisations tend to face and embrace the challenges of the digital era with most zeal and, in an effort to harness this resilient and innovative thinking, some have introduced the concept of a “shadow board”.

What is a shadow board?

A shadow board is an association of younger nonexecutive employees who engage with senior executives and management on strategic initiatives. The purpose is to leverage the acumen of younger minds to modify and diversify the insights available to senior executives in the workplace.

The positive impact of shadow boards had been evident before the advent of the Covid-19 pandemic. A recent Harvard Business Review study revealed that organisations that adopted a shadow board before the pandemic were better able to respond to the fallout from Covid-19 and the acceleration of digital transformation within the workplace.

Fashion conglomerate Gucci established its shadow board in 2015, consisting primarily of younger employees tasked with addressing strategic oversights and providing a fresh perspective on sales strategies and products. By virtue of this shadow board’s insight Gucci embraced the internet and digital strategies, with the result that sales rocketed between 2014 and 2018 and Gucci was salvaged from its creative coma.

Also in 2018, professional services firm KPMG implemented a shadow board consisting of younger employees, called its “millennial board” and which evolved into the “next generation council”. KPMG reported that the creation of the council resulted in a more robust decision-making process during which traditional norms and views were challenged.

KPMG adopted an active approach in that the council was a dynamic party in contributing to strategic initiatives, providing recommendations and solutions to the executive board on matters relating to the organisation. Members of the council also benefited personally through increased visibility, which boosted their career opportunities within the organisation.

Implementation of a shadow board

In SA there is no prescribed manner organisations are required to follow for the establishment of a shadow board. Organisations can adapt the models used in other jurisdictions and organisations, with reference to the organisational dynamics and the culture of the organisation. It is recommended that organisations that wish to establish a shadow board should seek the sponsorship of the CEO or executive committee so the shadow board can have a real impact and provide meaningful input.

We recommend that terms of reference be drawn up to govern the structure, purpose, mandate and role of the shadow board within the company’s operations.  The directors of the company should pass appropriate resolutions to establish the shadow board, and to the extent that members of the shadow board are delegated powers and authority, this should be formally delegated by the directors.

In addition, we recommend that the scope of power and authority delegated to the shadow board by the executive management be governed by the terms of reference, bearing in mind that this delegation of power does not absolve the board from ultimate responsibility.

To ensure that the shadow board is able to fulfil its purpose effectively it is recommended that members are selected from a diverse group of professionals from different demographics, organisational levels, functions, cultures and skill sets. This can be included in a company’s transformation policy or nomination policy. An open application process is recommended as this will result in increased worker engagement.

Membership of the shadow board could be on a rotational basis as a means of providing as many employees as possible with an opportunity to gain experience.

The process to be followed for the incorporation of a shadow board will depend on the culture within the organisation. However, nominations for membership of the shadow board can be invited from the executive, to ensure that management is involved in the election and nomination process. The experience and skills required should be stated on the invitation for nominations or the open application process.

Companies wishing to establish a shadow board may seek guidance from the provisions of the Companies Act in relation to the structure, eligibility, procedure of nominations or open applications, and governance of the shadow board. Members should contribute during the decision-making process, but also submit proposals or recommendations on matters to the executive and management for review and ultimate approval.

The main benefits of shadow boards are a fresh perspective and a more enthused workforce. Such employee engagement also appears to help corporates keep up to date with market changes and competition. Ultimately though, the decision to establish a shadow board, and the manner of its establishment, is dependent on the cultural dynamic of a company and the existing management structure.

• Stephens is senior associate: corporate & commercial, and Pundit is a candidate attorney at CMS SA.