Cross-Industry Board Experience: Can It Improve Corporate Governance?

Corporate governance has become more crucial in today’s complex business environment. Companies face increasingly diverse challenges, from regulatory compliance and financial oversight to navigating technological disruptions and shifting consumer expectations. Traditionally, boards of directors have been composed of individuals with experience in the same industry as the company they govern, assuming that this expertise would ensure effective leadership. However, an emerging trend in corporate governance is the inclusion of directors with cross-industry experience—bringing insights from diverse sectors to enhance board performance and decision-making.

Cross-industry board members bring varied perspectives, offering unique problem-solving approaches and innovative ideas that may not be typical in a homogenous boardroom. Their experiences across multiple sectors can help organisations address complex challenges with a more holistic understanding of broader business environments. For example, directors with a background in technology might help a traditional manufacturing company embrace digital transformation, while those from heavily regulated industries can bring a fresh perspective to compliance in less-regulated sectors.

The key question is: Does cross-industry experience improve corporate governance? This introduction explores the potential impact of having directors from different industries on governance effectiveness, examining how diversity in professional backgrounds can influence strategic oversight, risk management, and long-term value creation. As businesses strive to remain competitive in an evolving marketplace, the benefits of cross-industry knowledge could be pivotal in driving more dynamic and forward-thinking governance.

The Shift Towards Cross-Industry Board Experience

In an era marked by rapid technological advancement, globalisation, and increasing regulatory scrutiny, boards are tasked with overseeing a range of complex issues beyond their traditional responsibilities. As businesses become more interconnected and industries converge, directors with diverse, cross-industry experience can offer broader perspectives that enrich board discussions and decision-making.

A 2022 study by Harvard Business Review found that boards with directors from multiple industries tend to outperform those with homogeneous industry experience in areas like risk management, innovation, and strategic planning. These directors can help boards see beyond the immediate operational challenges of their specific industry and adopt best practices from other sectors that might not otherwise be considered.

Furthermore, according to the Russell Reynolds Associates 2021 Board Diversity Report, 58% of Fortune 500 companies now have at least one director with significant cross-industry experience, up from 40% in 2015. This shift reflects a broader recognition of the value that non-industry-specific insights can bring to corporate governance.

Cross-Sector Learning in Corporate Governance: Key Insights and Benefits

Different economic sectors can significantly enhance their corporate governance practices by learning from each other. Each industry has its own challenges and strengths, but cross-sector collaboration can provide fresh perspectives, foster innovation, and strengthen governance frameworks. Here's how different industries can benefit from exchanging corporate governance practices:

Cross-Industry Insights: Every industry faces unique challenges, but many governance principles are universal. By learning from other sectors, companies can gain new perspectives and innovative solutions that might not be apparent within their own industry.

Risk Management: Industries with varied risk profiles can share strategies for identifying, assessing, and mitigating risks. For instance, the financial sector’s sophisticated risk management practices can benefit industries like energy and manufacturing, helping them improve their risk assessment processes.

Technology and Innovation: Sectors like technology and healthcare lead in innovation. Their governance practices, particularly around data privacy, intellectual property, and ethical issues, can guide other industries as they adapt to technological changes.

Regulatory Compliance: Industries like finance and healthcare operate in heavily regulated environments and can offer valuable insights into navigating complex regulations. Sectors with less regulatory oversight can benefit by adopting best practices for compliance and risk management.

Stakeholder Engagement: Sectors like retail and consumer goods, known for strong community and customer engagement, can share effective approaches to stakeholder management. Building positive relationships and responding to feedback can enhance reputation and customer loyalty across industries.

Transparency and Reporting: Publicly traded companies, which are required to maintain high levels of transparency, can share best practices for financial and non-financial reporting. Effective communication with stakeholders is crucial for maintaining trust and credibility.

Board Diversity: Industries that have made significant progress in fostering diverse and inclusive boards can inspire other sectors to prioritise a variety of perspectives and expertise at the governance level.

Sustainability Practices: Sectors such as energy and utilities, which focus heavily on sustainability, offer valuable lessons on incorporating environmental, social, and governance (ESG) considerations into corporate decision-making.

Crisis Management: Industries that have effectively navigated crises can provide guidance on crisis communication, reputation management, and decision-making resilience, which are essential during times of turmoil.

Nonprofit and Governmental Practices: These sectors emphasise transparency, accountability, and public trust, which can serve as inspiration for industries looking to strengthen their governance frameworks.

Enhancing Strategic Oversight

Directors with cross-industry experience bring diverse perspectives to the boardroom, enabling more robust strategic discussions. For example, a director with a background in the tech industry might help a retail company integrate e-commerce strategies more effectively. Similarly, someone from the healthcare industry could introduce valuable insights on customer privacy and data protection to a financial institution.

Example: In 2020, General Motors (GM) appointed Meg Whitman, former CEO of Hewlett-Packard, to its board. Her experience in the technology sector was instrumental in helping GM navigate its transformation toward electric vehicles and digital platforms. Whitman’s cross-industry expertise helped GM identify opportunities in areas such as software development, AI integration, and advanced manufacturing, positioning the company for future growth in the electric vehicle market.

Promoting Innovation

Cross-industry directors are often exposed to cutting-edge technologies, emerging trends, and innovative business models from different sectors. This exposure can spark creativity and fresh ideas within the board, leading to innovative solutions that the company may not have otherwise considered. Directors from the tech industry, for example, can introduce innovations around artificial intelligence, data analytics, and digital transformation, which can be adapted to other sectors.

Example: Procter & Gamble (P&G), known for its consumer goods, appointed Amazon’s former executive Robert L. Wilkins to its board. Wilkins’ experience in e-commerce and logistics helped P&G significantly enhance its digital marketing and supply chain operations, making the company more agile and responsive to changing consumer behaviour.

Improving Risk Management

Different industries face unique risk profiles, and cross-industry directors bring valuable risk management insights from their respective fields. For instance, directors from the financial sector, which has stringent risk assessment processes, can help other industries improve their approaches to risk management, compliance, and crisis preparedness. Conversely, directors from industries like aviation, known for their rigorous safety protocols, can provide expertise in operational risk management.

Example: In 2017, BP, an energy company, brought on John Sawers, a former diplomat and ex-chief of the UK’s MI6 intelligence agency, to its board. His expertise in geopolitics, international relations, and security has helped BP navigate global risks, especially in volatile regions where the company operates.

Fostering Stakeholder Engagement

In today's socially conscious business environment, engaging with a diverse set of stakeholders—employees, customers, regulators, and communities—is crucial. Cross-industry directors, especially from sectors like retail, consumer goods, or nonprofits, often have extensive experience in stakeholder management. They can guide boards in building stronger relationships with stakeholders and managing corporate reputation.

Example: Starbucks appointed Mellody Hobson, a financial executive with strong ties to community and social responsibility initiatives, as chair of the board in 2020. Her expertise in diversity and corporate social responsibility has helped Starbucks strengthen its stakeholder engagement strategies, particularly around diversity, equity, and inclusion (DEI) efforts.

Learning from Other Sectors

Risk Management: The aviation industry's robust safety protocols have inspired healthcare organisations to implement checklists and standardised procedures in surgical settings. Similarly, the financial sector's expertise in risk management has helped energy companies navigate uncertainties related to commodity prices and regulatory changes.

Data Governance: The financial services sector, with its stringent data protection regulations, has influenced technology companies to adopt more rigorous data governance frameworks, improving privacy and cybersecurity.

Quality Control: Healthcare's focus on maintaining high-quality patient care has encouraged manufacturing industries to adopt Lean Six Sigma methodologies, resulting in improved product quality and operational efficiency.

Customer Engagement: The e-commerce sector's data-driven approach to personalised customer experiences has informed traditional retail businesses’ strategies, enhancing customer loyalty and satisfaction through targeted engagement.

Transparency and Accountability: Nonprofits’ commitment to transparency and accountability has motivated financial institutions to provide more detailed reports on financial health and risk management, fostering customer confidence and regulatory compliance.

Strategic Planning: Nonprofits have adopted corporate strategic planning methodologies, which have helped them set clear objectives, measure impact, and improve organisational effectiveness.

Performance Metrics: Government agencies have utilised private sector performance measurement techniques, such as key performance indicators (KPIs), to improve service quality and monitor performance more effectively.

Risk Management in Technology: Technology companies have adapted risk management practices from the financial sector to better address uncertainties like data breaches and cyber threats.

Benefits of Cross-Sector Governance Practices

Innovation: Introducing governance practices from other industries fosters fresh ideas and innovative solutions to long-standing challenges.

Efficiency: By adopting best practices from sectors that excel in operational efficiency, industries can streamline their processes and reduce waste.

Risk Mitigation: Learning from industries with different risk profiles helps organisations identify, assess, and manage risks more effectively.

Stakeholder Trust: Borrowing practices focused on accountability and transparency enhance stakeholder trust, contributing to a stronger reputation and long-term relationships.

Responsible Decision-Making: Sectors with strong ethical frameworks can inspire others to integrate responsible practices into their governance structures, promoting sustainability and social responsibility.

By sharing governance practices across industries, organisations can gain valuable insights, adopt innovative strategies, and strengthen their governance frameworks. This cross-sector learning not only enhances the effectiveness of corporate governance but also contributes to a more resilient and adaptable organisation that can better serve its stakeholders.

Current Trends Supporting Cross-Industry Board Experience

The push for board diversity is not limited to gender and ethnicity. There is a growing trend of seeking functional diversity, including cross-industry experience, to create a more well-rounded boardroom. A 2021 report by Deloitte revealed that 52% of boards globally are prioritising diversity in professional backgrounds as a means of improving governance and decision-making. Some of the key trends driving this change include:

1. The Rise of ESG (Environmental, Social, Governance): As companies increasingly focus on ESG principles, boards are bringing in directors from industries known for strong environmental and social practices, such as energy, utilities, and nonprofits. These directors help guide the company’s sustainability and governance efforts in line with broader societal expectations.

2. Technological Disruption: With the rapid digital transformation in almost every sector, boards are increasingly seeking directors with technology expertise, even in non-tech industries like manufacturing, retail, and healthcare. Cross-industry directors with tech experience are invaluable in guiding companies through digital disruptions.

3. Globalisation: As businesses expand globally, directors with cross-industry experience in international markets bring valuable insights into navigating different regulatory landscapes, cultural nuances, and geopolitical risks.

4. Private Equity Influence: Private equity firms, known for their cross-industry portfolios, are bringing their directors onto the boards of companies they invest in. These directors often have experience in various sectors and can bring a multi-faceted approach to governance, focusing on operational improvement, cost efficiency, and long-term value creation.

   
   

Challenges of Cross-Industry Board Experience

While the benefits of cross-industry experience are clear, there are potential challenges that boards must address:

1. Lack of Industry-Specific Knowledge: Cross-industry directors may lack deep knowledge of the company’s core business, which can slow down decision-making and reduce the director’s effectiveness in certain discussions. Boards need to strike a balance between cross-industry experience and industry-specific expertise to ensure all bases are covered.

2. Cultural Fit: Directors from different industries may not always align with the company’s existing corporate culture, which can lead to friction within the boardroom. Boards need to ensure that new directors align with the company’s values and governance style while bringing in fresh perspectives.

3. Integration of Ideas: Diverse perspectives can sometimes lead to conflicting viewpoints, making consensus more difficult to achieve. Boards must manage these differences effectively to ensure that cross-industry directors’ ideas are integrated into decision-making without causing delays or friction.

   
   

Driving Ethical Governance and Corporate Responsibility

With increasing societal and investor pressure, corporate responsibility and ethical governance have moved to the forefront of board priorities. Directors from sectors such as healthcare, government, and non-profit organisations often bring a strong focus on ethics, compliance, and social responsibility. These directors can enhance the ethical standards and corporate social responsibility (CSR) practices of companies in other sectors, driving sustainable governance practices.

Example: In 2021, Nike appointed Thasunda Brown Duckett, CEO of TIAA and a former banking executive, to its board. Her experience in finance and community-focused initiatives brought a heightened focus on corporate ethics, financial stewardship, and CSR at Nike, helping the company better address issues related to diversity and sustainability in both its supply chain and business practices. This emphasis on ethics has allowed Nike to address stakeholder concerns around labour rights and environmental responsibility.

Creating Resilience During Crisis Management

Cross-industry experience can equip boards with better tools to navigate crises, including economic downturns, public health challenges, and reputational risks. Directors from industries that are accustomed to operating in high-stress or regulated environments, such as aviation, healthcare, or telecommunications, bring valuable crisis management experience that can enhance governance during turbulent times.

Example: During the COVID-19 pandemic, Zoom Video Communications added several directors with cross-industry backgrounds to its board to help manage the rapid increase in demand and new cybersecurity risks. Zoom brought on Janet Napolitano, former Secretary of Homeland Security, whose deep understanding of risk management and national security enabled the company to enhance its crisis management and data protection policies amid heightened scrutiny from regulators.

Facilitating Cross-Sector Collaboration and Partnerships

Directors with cross-industry experience often have established networks and relationships in different sectors, making them valuable assets for fostering strategic collaborations and partnerships. These directors can help boards identify synergies between industries, opening up new business opportunities and avenues for innovation. For example, partnerships between technology and healthcare companies have rapidly accelerated the growth of telemedicine and digital health solutions.

Example: Pfizer, one of the world’s largest pharmaceutical companies, appointed Susan Desmond-Hellmann to its board. With experience in biotechnology and academia, Desmond-Hellmann played a crucial role in fostering collaboration with technology firms during the COVID-19 pandemic. Her cross-industry knowledge helped Pfizer enhance its digital transformation strategy, ultimately speeding up the development and delivery of vaccines through partnerships with companies like IBM and Salesforce.

Bringing a Global Perspective to Local Challenges

Cross-industry directors, especially those from multinational organisations, often bring a global perspective that can help companies navigate local and international challenges. Globalisation has led to more interconnected markets, meaning that regulatory, geopolitical, and economic issues in one region can significantly impact operations elsewhere. Directors with experience in global industries, such as finance, energy, or telecommunications, can help boards adopt a more holistic approach to governance that considers both local and international factors.

Example: Unilever added Feike Sijbesma, former CEO of Dutch multinational DSM, to its board in 2020. Sijbesma's background in sustainable business practices and global supply chains brought a global perspective to Unilever's efforts to strengthen sustainability practices in its operations worldwide. His cross-industry experience helped Unilever navigate geopolitical tensions, environmental regulations, and supply chain disruptions more effectively, aligning with its broader goal of improving sustainability across global markets.

Advancing Digital Transformation in Non-Tech Sectors

The rapid adoption of digital technology across all sectors has made it imperative for non-tech companies to incorporate directors with experience in digital transformation. Directors from the technology or telecom industries can help boards understand and leverage new technologies such as artificial intelligence (AI), cloud computing, and blockchain, which are transforming industries as varied as manufacturing, retail, and healthcare.

Example: In 2021, Ford Motor Company appointed Alexandra Ford English, an executive with experience in e-commerce and digital services, to its board. With her experience, Ford accelerated its digital transformation strategy, investing in connected vehicles, electric vehicles (EVs), and AI-based services. The result was a significant shift in Ford’s approach, with a greater emphasis on integrating technology into their vehicle offerings and enhancing customer experiences through digital channels.

Aligning Governance with Changing Investor Expectations

Institutional investors are increasingly focusing on environmental, social, and governance (ESG) factors when making investment decisions. Directors with cross-industry experience, particularly from industries that have led the way in ESG practices, such as energy, financial services, and consumer goods, can help boards align their governance frameworks with these shifting investor priorities.

Fact: According to a 2021 report by McKinsey & Company, 83% of C-suite executives and investment professionals agree that ESG programs create shareholder value. The report also found that companies with strong ESG performance tend to have lower capital costs and improved operational performance. As such, boards with cross-industry directors who understand ESG priorities can better meet investor expectations and attract long-term capital.

The Case for Cross-Industry Governance in a Post-COVID World

The COVID-19 pandemic has fundamentally altered how businesses operate, forcing many to rethink their strategies, governance frameworks, and risk management practices. In the post-COVID world, companies will increasingly rely on directors with diverse, cross-industry experience to navigate the challenges of recovery, including supply chain disruptions, shifts in consumer behaviour, and ongoing technological disruption.

A 2021 study by PwC found that 47% of directors cited strategic shifts due to COVID-19 as a key governance challenge, with boards increasingly recognizing the importance of directors who bring fresh perspectives from different industries. Cross-industry experience will be essential for boards as they prepare for a more dynamic and unpredictable business landscape.

Leveraging Sustainability Expertise for Long-Term Value Creation

As sustainability becomes a central concern for investors, consumers, and regulators, directors with cross-industry experience in sectors like energy, agriculture, or utilities—industries with a strong focus on environmental, social, and governance (ESG) practices—can provide invaluable guidance on integrating sustainability into corporate strategy. These directors can help companies develop long-term strategies that balance profitability with environmental stewardship and social impact, contributing to both immediate business success and future resilience.

Example: In 2021, Microsoft appointed Reid Hoffman, co-founder of LinkedIn and an early investor in sustainability-driven tech startups, to its board. Hoffman’s background in venture capital and sustainable technology gave Microsoft an edge in creating forward-thinking strategies for reducing its carbon footprint, promoting sustainability, and aligning with global ESG standards. His cross-industry insights have helped Microsoft innovate and lead in corporate sustainability efforts.

Cultural Sensitivity and Diversity in Global Markets

Cross-industry directors, particularly those with international business experience, can bring a deep understanding of cultural nuances and market diversity. This is increasingly important for global companies that operate in multiple regions with different cultural, social, and regulatory environments. These directors help boards ensure that governance decisions respect local customs, market dynamics, and stakeholder expectations, making it easier for companies to expand globally without missteps or reputational risks.

Example: Nestlé, the world’s largest food and beverage company, appointed Ruth K. Oniang'o, a professor and nutrition expert with global experience in public health and food policy, to its board. Oniang'o’s experience working across Africa, Asia, and Europe provided Nestlé with deep insights into navigating different markets, particularly in emerging economies, where cultural sensitivity and tailored governance practices are essential for sustainable growth. Her expertise helped Nestlé better address local market needs and stakeholder concerns in diverse regions.

Bridging the Gap Between Traditional and Digital Business Models

As traditional companies face pressure to adopt digital business models, having directors with experience in technology, e-commerce, or digital startups can be invaluable. Cross-industry directors from tech sectors can help traditional businesses navigate the complexities of digital transformation, from building online platforms to leveraging data analytics and cloud computing. They can also guide the development of digital-first strategies that align with customer expectations and market trends, helping companies modernise their operations and stay competitive in an increasingly digital economy.

Example: Walmart, traditionally a brick-and-mortar retailer, appointed Marissa Mayer, former CEO of Yahoo!, to its board. Mayer’s expertise in digital innovation and user experience helped Walmart accelerate its e-commerce growth and improve its online shopping platforms, leading to a more seamless omnichannel experience for customers. Her cross-industry experience provided valuable insights that helped Walmart compete more effectively with e-commerce giants like Amazon.

Facilitating Corporate Restructuring and Turnarounds

Cross-industry directors with experience in turnaround management or corporate restructuring can play a crucial role in guiding companies through difficult transitions, such as mergers, acquisitions, or financial crises. Directors from industries known for frequent restructurings—such as automotive, manufacturing, or private equity—can help boards develop strategies for restructuring operations, optimising costs, or managing post-merger integration. Their expertise can provide a fresh perspective on how to manage change effectively while maintaining corporate governance standards and stakeholder trust.

Example: In 2020, AT&T brought on John Stankey, a former executive from WarnerMedia, to its board. His experience in media, telecommunications, and corporate restructuring helped AT&T navigate its massive acquisition of Time Warner, streamlining the integration of both companies and restructuring its operations to better compete in the media and telecom landscape. Stankey's cross-industry experience was pivotal in AT&T's successful transition into a media giant while maintaining strong governance practices throughout the process.

Conclusion: The Value of Cross-Industry Board Experience in Corporate Governance

As businesses navigate increasingly complex challenges, the role of boards in providing effective governance has never been more critical. Cross-industry board experience offers a wealth of benefits, from enhanced innovation and risk management to improved strategic oversight and stakeholder engagement. Companies that incorporate directors with diverse professional backgrounds are better positioned to adapt to new trends, technological disruptions, and evolving stakeholder expectations.

In a world where corporate governance must be both agile and forward-thinking, the inclusion of cross-industry directors is not just a trend—it is fast becoming a necessity. By bringing in fresh perspectives from different sectors, boards can create more dynamic governance structures that drive long-term success

Our Directors’ Institute- World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out efficiently, helping you make a significant contribution to the board and raise corporate governance standards within the organization.