21 January 2025
For many years, board competency, skills compilations and risk management have come under public scrutiny. Construction business failures have further highlighted the importance of the individuals in those board seats and their ability to manage risk and strategically plan for future challenges and opportunities.
An effective board will not manage the day-to-day operations of the business but should be well-positioned to understand the key risks associated with current and future business trading activities. Considering the legacy of past performances during unprecedented times—such as the COVID-19 pandemic, the conflict between Ukraine and Russia, and political uncertainty in the UK and US—there has been an opportunity for learnings. But, do those at the top really understand how the business has been impacted and how it has implemented change compared to others?
This, coupled with the digital revolution moving at pace, challenges boards to look inward and assess whether their seats are filled with the right skills not just for the present but also for the future.
So, what are some of the key points that should be on the board’s agenda in the current construction climate?
Failures create success - impact of legacy contracts and learnings
Many businesses continue to feel the pain of the last five years, with numerous legacy contracts reaching practical completion years later than expected and final accounts showing very little margin, with many in loss positions.
The board plays a key role in challenging the leadership and management teams around the learnings taken away and how the business has implemented change operationally to ensure they have a strategic focus on what, with hindsight, they would have done differently and what barriers existed at the time.
For many businesses that struggled during this period, it was clear that reporting processes, financial assumptions and the agility to make quick decisions were inadequate. We have seen a large proportion of the industry, particularly at small and medium-size enterprise (SME) level, enhance their data and reporting capabilities, as well as restructure teams.
Stability on the horizon - economic and political environment
The autumn budget and International Investment Summit set the tone for growth in the UK, these are ambitious targets which have created optimism but also a question around capacity for delivery. The removal of anti-growth policies with a substantial investment in housing, healthcare, transport, giga factories, ports and defence all strengthen the construction pipeline.
A stimulated market, with major infrastructure and housing projects at the forefront of the government’s ambitions, raises questions about how businesses manage those pipelines and keep control of large infrastructure project deliveries and margins. The board must have a clear strategic focus on the industries they choose to grow and the pace of growth the business has capacity and infrastructure to achieve.
As well as a strategy for UK growth, the Chancellor also made clear that her aim to balance the books required taxes to increase. The board should have a clear understanding of the impact of taxes on their investors, with changes to Capital Gains Tax (CGT) and, for family-run businesses, wealth pass-down to younger generations with Inheritance Tax (IHT) increases. The board should strategically think beyond the tax changes and consider what they mean for the funding and future cash flows of the business.
Ultimately, market stimulation will also lead to an increase in inflation and a slowdown in the fall of interest rates, which will impact all businesses. The board should challenge leadership and management on their plans to forecast change and whether the business is agile enough to take advantage of opportunities while avoiding overtrading.
Thinking differently - digital strategy and IT infrastructure
As technology and data evolve, the construction industry has an opportunity to harness new information, creating efficiencies and insights into contract design and delivery. We are seeing the use of AI and experiments with Generative AI in the industry, but many businesses simply do not have the funds for investment or expertise to embed new technologies.
The board should consider IT investment strategies and understand how the industry, other industries, and competitors are using technology and encourage management to challenge how they are enhancing systems and using new technologies.
There is a risk that many businesses will fall behind as a result of insufficient investment and a lack of new skills being brought in through recruitment and training.
Focusing on the bigger picture - risk management and internal audit functions
With construction businesses accounting for the largest share of insolvency levels in the UK (17% - September 2024 insolvency stats) and employing 9 % of the UK workforce, the public and reputation profile of construction businesses is among the highest.
Due to recent failings, regulators have challenged the performance of committees and how risk management has been delegated, as well as the effectiveness of reporting to the board.
Our research found that 72% of leading construction firms have a sustainability committee in place to manage the climate risk. We also found 4% have a formal technology and innovation committee reviewing digital strategy.
The board should consider the delegated responsibilities and create a structure fit for the complexity of the organisation. They must also ensure that there is no information overload from these committees to ensure the board can focus on the key matters.
The right people in the right seats
As the spotlight brightens on the industry and board performance, the industry continues to struggle to secure the right skill sets and experience needed in this environment. Smaller businesses often rely on alumni and retired members to support with industry experience, but this raises questions about the board’s ability to effect change and learn from outside of the organisation and what is needed in the digital world.
All boards, regardless of size, should assess their skill requirements, the competency of the board members and whether they have appropriate diversity and skills around the table to bring multiple perspectives and experiences.
Recent research on board appointments in top construction firms over the past two years shows a trend towards hiring board members with careers in technology and energy, as well as from other industries, recognising that different facets are required to effectively lead businesses.
Source: RSM | Companies House Analysis (excludes construction industry hires)
As boards position themselves to meet future challenges and opportunities, these three focus areas can help navigate the complex and ever-changing landscape of the construction industry:
- Culture: boards need to continually assess the skills across the boardroom and act swiftly to address any gaps. Driving a culture related to strategic objectives across the entire organisation can only be achieved with a culture everyone buys into.
- Agility: in an environment that often feels like a permacrisis, boards must structure themselves to respond agilely to emerging issues and build for future growth. Hiring of external skills for projects and committee structures can facilitate this agility.
- Incentivisation: tying remuneration solely to financial performance is an outdated approach. Boards must incentivise teams with KPIs and remuneration linked to performance in areas such as ESG and technology. Increasingly, boards will introduce KPIs that focus on business transformation.

