The FINANCIAL — A new publication from Deloitte Global explores the critical issues which non-executive directors need to consider to navigate a 2017 that will be full of uncertainty.
The 8th annual Directors’ Alert, Courage under fire: Embracing disruption features a compilation of viewpoints by leaders across Deloitte’s global network and interviews with independent board members from around the world discussing key challenges board members are expected to face in 2017 and the strategies they can leverage to overcome obstacles to long-term success.
“As public scrutiny of boards of directors increases and the pace of technological change quickens, how well boards are set up for success becomes the central question,” said Dan Konigsburg, senior managing director of the Deloitte Global Center for Corporate Governance. “Our 2017 Directors’ Alert is a tool for board members to use throughout the year to raise important issues within their own organizations.”
Strategy in the face of uncertainty
Geopolitical events, technological disruption, and the growing risk of cyber-attacks have all contributed to a very unpredictable business environment. At this time of uncertainty and disruption, strategy design and execution have never been more important.
What really differentiates strategy is courage. In the context of business strategy, courage is the willingness to engage in courageous conversations, to encourage courageous considerations, and to make and execute courageous choices. Directors should challenge themselves on how they are injecting courage into their strategy.
Culture starts with the board
Today, there is a renewed focus on the importance of culture in driving strategy. According to the publication, the importance of culture is perhaps most apparent when things go wrong, as misalignment between culture and strategy may not only reduce an organization’s ability to achieve its strategic objectives, but derail its strategy altogether and significantly damage an organization’s reputation.
Twenty-twenty hindsight about company culture is not enough. An organization’s leaders – its board of directors and senior management – need to set the cultural tone of the organization and lead by example. Furthermore, organizations need to assess the cultural climate on an on-going basis and determine whether it is enabling or hindering the underlying strategy.
Become a champion for innovation
To prepare for the future, organizations must understand what external factors are contributing to business disruption, as well as what internal factors are hindering how they deal with disruption. It is very difficult to sustain long-term success in the current environment if disruption and innovation are not part of the fabric of the organization.
“Boards and management need the courage to disrupt their own business models, methods, and processes, even if they are still producing results,” said Michael Rossen, managing director of the Deloitte Global Center for Corporate Governance. “If boards are not innovating and asking questions about how their organization is navigating disruption, forming new ecosystems, and tapping into open talent markets, then an organization may be missing critical opportunities.”
Additional issues facing boards include:
Technology – Every company must in some sense be a technology company today, yet tech adds a layer of complexity for boards. Every organization may be at risk from a major technology crisis – from a failure in critical infrastructure, a cyber-attack, the corruption of databases, or a simple power outage. Technological issues are highly likely so organizations need resilient strategies and incident response plans to enable them to return to normalcy in an acceptable period of time following an incident.
Transparency – New international auditing standards will be effective this year that require enhanced reporting by the auditor to provide greater transparency. The enhanced reporting is designed to improve communication between auditors and investors, as well as those charged with corporate governance, like the board. However, given that these enhanced reports are in addition to the vast amount of information companies already disclose in their financial statements, annual reporting, and other materials, concerns have been raised that users will view the discussion of key audit matters in the auditors’ report as a shortcut to avoid reading the rest of the disclosures.
Board effectiveness – Shareholders, employees, and the broader community need to be confident that boards are making the best possible decisions, particularly by avoiding “group think” mentalities. Three building blocks to board effectiveness are boardroom diversity (diversity of thinking), structure of conversation (equal voices), and leadership (stimulating robust and thoughtful debate).
Compensation – Executive pay has been blamed for advancing social and income inequality and, to some extent, it is seen as a symptom of wider societal issues. With regulations growing tighter across Europe, the UK, and the US, intense scrutiny of compensation practices and the controversy surrounding their decisions are only likely to increase from not just shareholders, but also media, legislators, and the public at large.
“Uncertainty can lead to organizations feeling overwhelmed. Our publication has identified ways that boards can improve their approach across these seven areas, and ultimately, be more confident about their decisions,” said Konigsburg.