Fortune's Modern Board 25 was launched last year with the aim of identifying the qualities expected of a high-performing board that can guide a company through the complex and evolving risks of today's business landscape. Boards have shed their old reputation as networks of powerful insiders motivated only by profit and are now expected to operate as advisory teams, managing traditional expectations of revenue growth and leadership succession planning, while also dealing with newer requirements such as carbon footprint reduction, social equity, and compliance with regulations.
To track the evolution of corporate governance, Fortune used data from Diligent and Refinitiv to quantify board success across multiple dimensions such as independence, sustainability, diversity, and financial performance. This year's ranking shows that boards of all categories are progressing towards an updated model, albeit at different speeds. The top companies in the ranking have recurring themes, including diversity, global awareness, technological awareness, and productive disagreement. The best boards are diverse, and diversity is now a competitive differentiator. Board members are expected to be knowledgeable about the companies they oversee and their sectors while managing separate day jobs. Independence is now a bare minimum expectation, but it is not enough to ensure that boards are stress-testing management decisions and challenging the CEO. Boards must create the right culture to exercise their power effectively. The best boards are marked by humility, skepticism, advice, openness, and healthy discussion.
Modern boards collaborate with the C-suite
Boards exist to guide strategic risks and guard against reputational ones—but modern boards do both in collaboration with management rather than at a distance. In fact, directors often gain visibility into a company beyond the CEO or CFO by attending town halls and industry events and making site visits, according to directors who spoke with Fortune. In some cases, directors will pair up with their counterparts within the company. For example, a veteran chief information security officer director will become a sounding board for a chief technology officer.
Baker Hughes’ Simonelli says a board member recently met with the company’s leader for field services and equipment because the director happened to be in the area. And at Gen Digital, Smith, and Heath plan to walk the hallways in the company’s new Prague office and meet employees when the next board meeting is held there.
Such ties pay dividends by enriching and expanding a management team’s knowledge and confidence. It can also protect a company from missteps. Case in point: When Ralph Lauren launched two new lines of clothing last year in partnership with Morehouse College and Spelman College, two historically black U.S. academies, the executive team first asked its two Black board members, Ford Foundation president Darren Walker and Jarret, for feedback. “They said, ‘We just want to pressure test this against you,’” says Jarrett. The company had designed sweaters and suits that spoke to the colleges’ past and distinct identities. “It was such a good example of Ralph as a creative genius giving deference to his team, who had subject matter expertise, to come up with something unique and bespoke, to not just create clothing but create clothing that was a part of the historic fabric of an institution,” says Jarrett. “We ran out of product too quickly. That’s the only thing where we could have planned a little bit more.”
Modern Boards create good corporate citizens
As it happens, Ralph Lauren’s collaborations with Morehouse and Spelman were inspired by a commitment the company made following George Floyd’s murder in 2020 as brands faced scrutiny for their contribution to the long history of racism in the U.S. “We will examine how we portray the American Dream,” Ralph Lauren’s founder and its CEO wrote in an open letter to employees.
Consumer reaction to the HBCU line, the brainchild of a Morehouse alum at Ralph Lauren, was somewhat skeptical but mostly positive, according to the New York Times. The board’s involvement is just one example of how effective directors now use their influence to support CEOs who want to be good corporate citizens—and hold them accountable when they fall short of their pledges. Despite the rising anti-ESG movement, modern boards understand that social and environmental goals, reputational risk, performance and longevity, and the ability to recruit and retain employees are all interlinked.
Directors are themselves motivated to find purpose in their boardroom work, too. “We understand that if we’re successful, we are making a profound impact on people’s lives,” says Theodore Samuels, lead independent director at Bristol Myers Squibb. Similarly, Smith at Gen Digital says she feels fortunate to serve on a company’s board, helping consumers, especially young ones, think about using digital products responsibly. At Baker Hughes, formerly a company strictly focused on oil field services, leaders foresaw that pursuing green tech and supporting companies as they switched from fossil fuels to cleaner energy was the right transformation strategy for the company, Simonelli tells Fortune. Now, the firm is recognized as a sustainability leader, singled out for its investments in geothermal energy by Politico. It’s also the least vulnerable to activist interest among companies on our ranking, according to Diligent’s data.
Modern directors appear aligned with the growing share of employees who want to work for an employer that shares their values. But the boards on our ranking don’t take employee support for granted—they’re constantly running surveys to get a pulse on employee satisfaction levels, several directors noted.
Shareholder returns are important, says Jarrett, but high-performing boards realize that companies are also corporate citizens who “have a responsibility as [part]of a democracy to do what we do best and to play a responsible role.”