The old assumption that the past informs the future no longer holds true in an era marked by unparalleled speed and deep-rooted uncertainty. Corporations today face an environment that require boards to recalibrate their governance approach.
Indeed, our collaborative board research with BCG, Heidrick & Struggles and INSEAD has identified significant challenges in long-term strategic planning. For example, while directors generally recognise trends and potential shifts in areas like sustainability, only 10 percent believe it will impact medium- to long-term financial results. We see a general tendency to underestimate the influence of external trends on the future of organisations. Such trends include generative artificial intelligence (GenAI), factors linked to trade, geopolitical disruptions as well as climate and sustainability.
Each of these issues presents its own set of challenges and complexities, and the business implications of these external trends cannot be considered in isolation, particularly over the long term. Furthermore, it"s reasonable to anticipate this list will keep changing. Echoing this sentiment, the chair of a Fortune 100 company told us: “This is definitely one of the most challenging times companies have ever faced – and it’s not likely to change any time soon."
Boards are now called to weave major global trends into the very fabric of their strategic decision-making. In practice, this means boards must adopt a more forward-looking mindset. The nature of boardroom discussions must evolve, encompassing a broader array of issues than ever before. The problem is that board members often feel ill-prepared, both in terms of their skill set and the traditional board agenda.
The forthcoming 2024 BCG, Heidrick & Struggles and INSEAD global directors survey is designed to explore how boards are governing in this uncertain world. We look forward to sharing these insights. Meanwhile, here are seven recommendations for boards to recalibrate their governance strategies and skill sets to navigate at unparalleled speed amid deep uncertainty.
We advise boards to refine two critical lists. The first should detail the most significant external uncertainty factors as well as the strategic and operational questions that come with them. The second should capture the relevant areas where the board feels its actions, knowledge or understanding are lacking.
The board should start by stress-testing management’s approach to speed and uncertainty. How is the firm intending to capitalise on disruption to improve its competitive advantage and value creation?
These regulations present direct risks for boards as well. For instance, boards must sign-off on transition plans for aligning corporate strategy with the goal of limiting global warming to 1.5°C. They must also disclose comprehensive details about their governance processes, such as how (and how often) the board is informed about sustainability issues.
Instead of perceiving these requirements as burdensome or troublesome, boards should view them as a chance to surpass mere compliance and standard box-ticking routines. Since many of these new legislative mandates are also driven by future risks and opportunities, boards can build on the resulting insights to guide long-term strategy. Similar requirements may crop up around GenAI as the technology progresses.
We recommend comprehensive and imaginative dynamic scenario planning. This involves exploring a range of possible outcomes and their specific challenges and opportunities. Boards can thus better grasp how long-term trends could affect the future value and operations of the business. Only 34 percent of board members believe their companies have a full understanding of these dynamics. Even fewer are confident that their company is prepared for transformative changes or able to identify where business shocks might arise.
The board has a critical role to play in probing the extent and quality of the company’s innovation capacity. It must assess where and how innovation initiatives are influencing the company’s products, business models and ways of working.
The board agenda must be dynamic and agile, regularly incorporating new trends and risks. Frequent scenario planning sessions (as described above) should be added to the board"s routine activities. New trends may involve adapting existing committee roles or creating new ones. Lastly, meetings might need to be held more frequently.
In this era of disruption, boards must adopt a more forward-thinking mindset. By revising their governance strategies and acquiring relevant expertise in key external factors, boards can aptly steer their companies through these turbulent times.
First Published: May 09, 2024, 10:16
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