Shadow Boards' Application in Corporate South Africa

​The impact of the COVID-19 pandemic has resulted in a shift in workplace culture, forcing organizations 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 in which firms provide their products and services to clients.

Several companies identified that the younger minds in organizations continually faced and embraced the challenges of the digital era with zeal and, in an effort to harness this resilient and innovative thinking, they 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 of a shadow board is to engage with and leverage the acumen of the younger minds to modify and diversify the insights and the panorama of the senior executives in the workplace.

The Success of Shadow Boards

The positive impact of shadow boards had been evident prior to the advent of the COVID-19 pandemic. A recent Harvard Business Review study revealed that organizations that adopted a shadow board prior to the COVID-19 pandemic were able to respond to the impact of the COVID-19 pandemic on their operations and the acceleration of digital transformation within the workplace.

Gucci, a fashion conglomerate, established its shadow board in 2015 that consisted primarily of younger employees who were devoted to address strategic oversights and provide a fresh perspective on sales strategies and products. By virtue of the shadow board's insight, Gucci embraced Internet and digital strategies, with the result that sales at Gucci skyrocketed by 136 percent in 2018 from 2014.

Also in 2018, professional services firm, KPMG, implemented a shadow board consisting of millennial employees, known as their Millennial Board, which evolved to the Next Generation Council. KPMG reported that the creation of the council resulted in a robust decision-making process, where traditional norms and views were challenged. KPMG adopted an active approach in that the council was a dynamic party in contributing strategic initiatives, providing recommendations and solutions to the executive board in actual matters relating to the organization. Members of the council also benefited personally through the increased visibility, which boosted their career opportunities within the organization.

Implementation of a Shadow Board

In South Africa, there is no prescribed manner that organizations are required to follow for the establishment of a shadow board. Organizations can adapt the models used in other jurisdictions and organizations, with reference to the organizational dynamics and the culture of the organization.

It is recommended that organizations that wish to establish a shadow board should seek the sponsorship of the CEO or executive committee, in order for the shadow board to be impactful and provide meaningful input.

A terms of reference should be drawn up to govern the structure, purpose, mandate and the role of the shadow board within the operations of the company. To the extent that a company sets up a shadow board, the directors of the company should pass appropriate resolutions to establish the requisite shadow board, and to the extent that such members of the shadow board are delegated certain power and authorities, the resolution or power of authority should delegate the authority to the shadow board. Additionally, the scope of power and authority delegated to the shadow board, if any, by the executive management should be governed in the terms of reference. Nonetheless, this delegation of power does not absolve the board of directors from ultimate responsibility.

To ensure that the shadow board is able to fulfill its purpose effectively, members should be selected from a diverse group of professionals from different demographics, organizational 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. The process to be followed for the incorporation of a shadow board will depend on the culture within the organization. Nonetheless, nominations can be invited from the executive management for members of the shadow board, to ensure that the executive management is involved in the election and nomination of certain members of the shadow board. 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 submit proposals or recommendations on matters to the executives and management for review and ultimate approval.

The membership of the shadow board can be on a rotational basis as this seeks to provide as many workers as possible with an opportunity to serve on a shadow board.

The overarching sentiment that resulted in the uptake of shadow boards is that a fresh perspective and a more enthused workforce engagement appears to be the elixir for corporates to keep up to date with market changes and competition. Ultimately, the decision to establish a shadow board and the manner of establishment is dependent on the cultural dynamics of a company and the existing management structure in place.

Savanna Stephens is an attorney and Pooja Pundit is a candidate attorney with CMS South Africa in Johannesburg. © 2022 CMS South Africa. All rights reserved. Reposted with permission of Lexology.