March 16, 2019

Top Priorities for US Boards in 2019

According to a report, Top priorities for US boards in 2019, "In today's world of unrelenting disruption and innovation, a company's board plays a more active role than ever before in overseeing strategy and risk management amid digital and emerging technologies, industry convergence and workforce transformation, shifting consumer attitudes, increased climate risk, diminishing trust in organizations, political polarization, rising income inequality and various other megatrends shaping the business environment."

The report, which was published by EY, a global professional services firm, adds: "As a result, the board agenda is packed and the roles and expectations of directors continue to grow. To help boards navigate the challenges ahead, the EY Center for Board Matters presents five priorities for 2019, along with actionable questions for boards to consider."

1. Embrace the duality of strategy

"The board should lean in with management in a collaborative manner to help guide a strategy that positions the company for long-term success. Rather than see the duality as a tension, boards can help management embrace it as a synergy that can help inform a stronger and more resilient strategy. Asking 'What can be done today to make the company better and stronger tomorrow?' can provide a clear and motivating path forward while considering multiple dualities: short-term vs. long‑term, disruption vs. sustainability, profit vs. investment, risk vs. opportunity and use vs. conservation."

Questions for the board to consider:
  • How is the board helping to shape an agile, multistakeholder strategy that drives current business while considering future innovation and opportunities?
  • Should the board bring in outside perspectives to understand the forces shaping the competitive environment?
  • Has the board confirmed that management and director bias do not impede innovation?
  • How is the company preparing for competitors that may emerge? Is the board challenging the current business model by widening its view into edge geographies and adjacent industries?
  • Does the executive compensation program help balance short-term performance goals and long-term transformation?

2. Transform the governance of risk management

"Boards should challenge whether management is intensifying its efforts and focus with educating their employees broadly on their personal responsibilities related to risk management. This includes verifying that employees have a thorough understanding of the company's values, code of conduct, ethical business practices, and are exercising the appropriate compliance hygiene related to cyber and physical security."

Questions for the board to consider:
  • Are the board composition and committee structure appropriate to provide effective oversight of the company's risk profile?
  • Is the board periodically evaluating data to validate the company's culture and to determine if values are being lived by everyone in the organization?
  • Have messaging and education increased within the company's employee base related to the importance of their overall role with risk management?
  • What external data is the board using to evaluate emerging and disruptive risks? What third-party resources are being used to validate the company's risk mitigation on such things as cybersecurity, data privacy and geopolitics?
  • Is the board taking part in tabletop exercises that test the company's crisis readiness across various scenarios?

3. Accelerate the talent agenda and activate culture as a strategic asset

"A company's culture must be a strategic asset. The board should have a strong pulse on how executive, mid-level and lower-level management demonstrate and communicate the company's values. They should also understand how a company's programs promote culture and drive the right behaviors and actions. This requires the board to review culture across the organization and look at talent-related performance metrics, including employee engagement scores, attrition rates, diversity and inclusion metrics, learning and development ROI, whistle-blower hotline activity, themes from employee onboarding and exit interviews and code of conduct violations. Compensation committees should review the company's broader compensation practices to see if they align with its values and goals and consider any unintended consequences of such practices."

Questions for the board to consider:
  • Is the board continuously reviewing its governance of culture, talent and innovation given the ever-growing significance of intangible capital to competitive advantage?
  • What talent-related metrics is the board reviewing and how often?
  • Has the organization evaluated the required competencies, skill sets and structure required to successfully carry out its strategy and business objectives?
  • Does the board have a good understanding of the health of the organizational culture at the top, middle and bottom of the organization (tone at the top, mood in the middle and buzz at the bottom?). What metrics are being considered to support such conclusions?
  • How much visibility, access and reporting is the chief human resources officer (or equivalent) providing to the board around human capital management/talent related risks and opportunities?

4. Strengthen communication and engagement with stakeholders

"As boards and executives work together to tackle ever-more complex and quickly evolving challenges, they're also finding that a growing range of stakeholders — corporate leaders and employees, customers and suppliers, communities and investors — are increasingly focused on the broader purpose of the corporation. These diverse stakeholders increasingly seek greater insights into how companies are strategizing for business sustainability, including addressing environmental and social matters that impact long-term value."

Questions for the board to consider:
  • Has the company considered how it might harness purpose to reveal a path through business model disruption and concurrently prioritize stakeholder engagement and communication efforts?
  • Is the company familiar with key multistakeholder groups and other organizations focused on leading environmental and social metrics and disclosures, such as the Climate Action 100+, the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board's (SASB) disclosure frameworks?
  • How is the company communicating to all stakeholders — in a consistent, comprehensive manner — its efforts to provide sustainable, inclusive growth integrated with core business strategy?
  • To what extent is the company familiar with the governance specialists, as well as the portfolio managers and equity research analysts, who follow the company? Has the company engaged in outreach and established a relationship such that it can quickly engage as appropriate?

5. Continue to enhance board performance

"Today, boards and their committees are seeing reasons to expand their oversight into new areas. For example, as talent becomes increasingly critical to strategy and value, compensation committees should consider expanding their oversight to broader employee and talent matters, including how to attract, retain and motivate the workforce needed to further support and activate the company's strategy and purpose."

Questions for the board to consider:
  • How does the board, its committees and directors stay fully informed? What steps does the board take to make sure its knowledge and perspective enable agile and effective decision-making and identification and solving of problems?
  • Does the board represent the right mix of relevant skills and specialized expertise, industry knowledge, understanding of key stakeholder views, diverse backgrounds, experiences and perspective that stimulates effective oversight and direction? How is this disclosed?
  • Do board discussions and decisions demonstrate that all board members are highly informed and engaged, respectful even when challenged, appropriately inquisitive, and attentive to and informed about both big-picture concepts and important details?
  • Is the board engaged with the company's investors, employees, customers and regulators such that it clearly understands their key views and priorities and can appropriately incorporate them into the company's strategy?

As a member of the board of directors of a few companies, I concur with the report's conclusion that "2019 will certainly bring more to the board's agenda as they continue to consider the duality of meeting today's demands and disruption with an intense focus on future opportunities and growth."

What is more, "Things will continue to change rapidly and new risks will arise. Stakeholder voices are likely to get louder too, but by asking thoughtful questions, considering different perspectives, clearly communicating and focusing on governing in the most effective way, boards can help organizations flourish in the next 12 months and beyond."

What would you add to this list of top priorities for US boards in 2019? How will the board of directors help your organization flourish in the next 12 months and beyond?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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