Boards will continue to be tested in 2020 as their work demands more diverse competencies, innovative thinking, complex problem-solving and stronger governance. Boards will need to allocate additional time to understand and address factors that contribute to sustainable long-term value creation while meeting urgent challenges stemming from economic, geopolitical, technology and social developments.
To support boards as they enter the new decade, the EY Center for Board Matters has identified the following board priorities for 2020:
1. Strategically prepare for growth amid increased uncertainty
2. Accelerate the talent agenda and activate culture as a strategic asset
3. Evolve enterprise risk management (ERM)
4. Prioritize cybersecurity and data privacy
5. Address geopolitics from a strategic perspective
6. Embrace ESG as a business imperative
7. Redefine and better communicate long-term value
8. Take a continuous improvement approach to board effectiveness
1. Strategically prepare for growth amid increased uncertainty
Current economic, geopolitical and social signals are mixed, creating uncertainty across business environments and requiring companies to consider both defensive and offensive strategies.
Boards must help their companies face uncertainty by embracing the duality of strategy, meaning they must strategize for challenges beyond the horizon while driving current business results.
Companies that fare best in these conditions don’t just play it safe, they also allocate resources to double down on growth, even during uncertain times. This means boards must continue to influence management teams to protect assets and optimize operations while also encouraging prudent risk-taking to maximize opportunities for growth.
Taking care of and optimizing the business includes protecting the brand, enhancing stakeholder loyalty, divesting out of activities that are not core to purpose and strategy, strengthening margins and optimizing cost structures. It also means staying focused on the fundamentals such as alignment to core values and ethical behaviors, cybersecurity defenses and strong governance.
Doubling down on growth can mean investing in new technologies, maintaining a focus on R&D and innovation and strengthening customer relationships by proactively engaging to understand their current and unmet needs. It can also mean undertaking strategic acquisitions, gaining new insights through data analytics or transitioning to more agile computing.
Our research has found that executives in large multinational corporations were far less likely to be focused on pursuing new market opportunities, and far more likely to be focused on securing the present in uncertain times. Entrepreneurs, on the other hand, are far more likely to look for opportunity in uncertainty to gain market leadership or first-mover advantage. Leading management teams and boards view these strategic approaches as both-and, not either-or. Deploying a dual strategy by making defensive moves simultaneously with bold actions is the best way for companies to position themselves for the long-term amid increasing uncertainty.
Developing the most appropriate business responses to uncertainty requires boards and management to deepen their insights into the current and future demands of key stakeholders, including investors, customers, employees, regulators and the communities where their companies operate. Boards should have a clear understanding of business and industry megatrends and their drivers, both historical and forward-looking, and gain clear insight into what customers and employees want today and in the future. Boards that consider scenario planning for a wider range of possibilities to identify specific trigger points for action and those that have substantive strategy discussions on an ongoing basis (i.e., not just once a year) will be well-prepared to address this increased uncertainty.
Questions for the board to consider:
- Is the board effectively monitoring megatrends, new technologies and economic signals to gather early insights on potential impacts on the business?
- Is the board taking steps to continue bringing an outside-in perspective to the boardroom and keeping a pulse on disruptive technologies and innovation drivers?
- What methods is the board using to stay well-informed about key stakeholder demands, interests and preferences that can affect future strategic direction?
- Amid ongoing uncertainty, is the board overseeing allocation of capital and other resources in a way that protects assets, optimizes operations and executes on long-term strategies for growth – both playing it safe and doubling down?
- Is the board allocating enough time for discussion of and planning for different economic scenarios and outcomes in a range of time frames?
2. Accelerate the talent agenda and activate culture as a strategic asset
Growing trends are continuing to change the future of work. Digitization is having a significant impact across all industries, affecting all businesses and the workforce globally. Employees are adapting to new technology, and new skills are needed to keep up with ongoing technological disruption. Today’s workforce now includes five generations of workers: traditionalist, baby boomer, Gen X, millennial and Gen Z. In addition, the very nature of employment and worker profiles are changing rapidly to make greater use of contingent, contract, remote and robotic workers. Despite these different workforce demographics, all workers want work that is purposeful and better aligned with their needs and values.
Boards are increasingly being charged with understanding and addressing an array of workforce issues and trends. To start, they should focus on governance in the broader context and see that the company’s purpose, vision, mission, strategy, and culture are aligned and broadly understood by all stakeholders. Boards should look to oversee the company’s strategy for workforce agility and related cultural initiatives to address broad impacts on business and the workforce, plan for change and future skills, diagnose and realize diverse workforce potential, and drive leadership development and adaptability.
Boards should embrace a trust but verify oversight approach using analysis of direct and indirect metrics for culture and human capital intelligence. This can include analysis of employee engagement scores and pulse surveys, external sources (e.g., social media), turnover and attrition measures, employee exit interviews, promotion schedules and criteria, diversity and inclusion metrics, pay equity data, employee education budget per full-time employee, and some direct interaction between board members and lower-level employees (e.g., visits to company facilities).
Boards should also confirm that external reporting effectively communicates how the company is creating competitive advantage and long-term value through its human capital and culture (including decision-useful, quantitative and qualitative data), and how both the board and management are addressing human capital management and development. There is growing market interest for this information, as demonstrated by a recent proposal by the Securities and Exchange Commission to call for enhanced human capital disclosures and the continued development of external frameworks that companies can leverage in measuring and reporting on human capital and culture.
The Chief Human Resources Officer (CHRO) should be a strategic resource for the board on these matters as boards redefine their scope of oversight of human capital and the workforce. Part of setting the right tone is making sure culture and human capital management are a board priority that is regularly addressed, monitored and adjusted to align with the company’s strategy and long-term objectives.
Questions for the board to consider:
- Does the board set the right tone at the top, including by dedicating adequate time to talent and culture discussions, at the board and committee levels?
- Has the company’s culture been intentionally defined in the context of its strategy, and is there a shared understanding of the culture throughout the organization?
- How frequently does the board receive reports on the health of the organization’s culture? If there are gaps or problem areas, how are they being addressed?
- Do the company’s senior leaders understand the trends affecting the workforce of the future, and are they driving the necessary shifts in culture, training and development?
- Is the board receiving relevant data and spending enough time with the CHRO to oversee culture and talent strategy?
- How is the company integrating human capital and culture metrics and performance into earnings calls, analyst meetings and its external financial reporting to better communicate long-term value?
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