Boards will continue to face demands for more diverse competencies, innovative thinking, complex problem-solving and stronger governance.
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.
- Strategically prepare for growth amid increased uncertainty
- Accelerate the talent agenda and activate culture as a strategic asset
- Evolve enterprise risk management (ERM)
- Prioritize cybersecurity and data privacy
- Address geopolitics from a strategic perspective
- Embrace ESG as a business imperative
- Redefine and better communicate long-term value
- Take a continuous improvement approach to board effectiveness
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?