OPINION: What should Boards focus on in 2019?

DURBAN – The game-changing implications of technology/digital innovation, scrutiny of corporate culture, growing demands to address environmental and social issues, and investor expectations for greater board engagement, diversity, and long-term value creation should all drive a sharper focus on positioning the company for the future. 

Combined with concerns about mounting trade tensions, resurging debt, high valuations, and political swings in the US, UK, not forgetting here at home in SA with the recent elections, the year ahead will require a careful balance of near-term focus, agility, and long-term thinking.

KPMG has highlighted the following seven items for boards to consider as they focus their 2019 agendas on their critical challenge:

1. Take a hard look at the board’s composition: Is the talent in the boardroom diverse and aligned with the company’s strategy and future needs? Institutional investors are increasingly focused on board composition, expressing concern about lack of diversity, low director turnover, and whether the board has the right skill sets to guide the company and its strategy in the future. There is a broad range of board composition issues that require board focus and leadership – including succession planning, age and term limits, diversity, individual director evaluations, removal of underperforming directors, and board refreshment.

2. Recognise that connecting digital disruption with risk management and strategy is more important – and more challenging – than ever. Advances in digital technologies such as cloud computing, robotic process automation, machine learning, artificial intelligence (Al), and blockchain (and the speed of these advances) are disrupting business models and transforming how companies do business. Understanding how the company collects, protects, analyses, and uses data has become table stakes for broader, potentially game-changing questions: What are the goals of the company’s digital strategy, How can the use of big data and advanced analytics help drive the business and how do we manage the data in a responsible, ethical manner?

3. Help focus the company on long-term value creation and understand the views of all key stakeholders. Investors continue to emphasise their expectations for companies to focus on long-term value creation and the factors driving it, like strategy and risk, talent, R&D investment, culture and incentives, and environmental, social, and governance (ESG) issues – particularly climate change and diversity whilst stressing the importance of the sustainability of the company’s business model.

4. Make CEO succession and talent development throughout the organisation a priority. Few board responsibilities are more important than hiring and firing the CEO – a reality that continues to hit the headlines, particularly if the board is caught flat-footed. Given the complex and disruptive business and risk environment today, it is essential that the company has the right CEO in place to drive strategy, navigate risk, and create long-term value for the enterprise. The board should be prepared for a CEO change – both planned and unplanned. Succession planning should start the day a new CEO is named.

5. Assess, monitor, and reinforce culture as a strategic asset and critical risk. Corporate culture is front and centre for companies, shareholders, regulators, employees, and customers – as it should be for every board. Headlines of sexual harassment, price gouging, shady sales practices, and other wrongdoing – with corporate culture as the culprit – have put boards squarely in the spotlight: Where was the board? And what is it doing to fix the culture?

6. Continue to refine boardroom discussions about cybersecurity and data privacy as risk management issues.

Cyber threats continue to grow more sophisticated and aggressive, with implications for nearly every facet of business. Hacks at major companies punctuate the new reality that any organisation on the grid is vulnerable. Boardroom discussions should be moving beyond prevention to detection, containment, and response – and to addressing cybersecurity as an enterprise-wide business issue that affects strategy, compliance, product development, M&A, expansion into new geographies, and relationships with suppliers and customers. A robust and frank boardroom dialogue is vital to helping the company learn to live with cyber risk and making cybersecurity a core competency across the business.

7. Reassess the company’s crisis prevention and readiness. Crisis prevention and readiness have taken on increased importance and urgency for boards, as the list of crises that companies have found themselves facing in recent years continues to grow. Crisis prevention goes hand in hand with sound risk management – identifying and anticipating risks and implementing systems of control to help prevent crises.

Focusing on these 7 core areas will go a long way to helping Boards drive a sharper focus on positioning the company for a better future.

Ugen Moodley is Managing Director of KPMG in KwaZulu-Natal. He can be contacted at 031 327 6000, on his cell 083 452 3145 or email ugen.moodley@kpmg.co.za

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