Topics:   Corporate Governance,Leadership

Topics:   Corporate Governance,Leadership

February 4, 2022

Board Leaders Recalibrate for the New Reality

February 4, 2022

The context for doing business continues to change rapidly, with the shift toward stakeholder capitalism requiring a different kind of decision-making and deliberation in the boardroom. How companies and their stakeholders measure performance and success is changing, and expectations have perhaps never been higher for boards to be deeply engaged and help put strategy and risk conversations in context for the business.

To that end, below we highlight some of the critical forces and expectations shaping business and boardroom conversations that were highlighted in discussions with directors, business leaders, governance luminaries, and thought leaders during our virtual 2022 Board Leadership Conference:

Agility and Accountability in a Stakeholder World

With investor and stakeholder views of corporate success and value creation changing fast, business and boardroom leaders should also be adjusting their lenses. As one director noted, “We’re well past the era of the board seeing the company’s mission as solely focused on the bottom line.” A company’s ability to succeed increasingly hinges on “how well it melds business objectives with policy and social issues.”

The shift to stakeholder capitalism—greatly accelerated by the events of 2020 and 2021—has sharpened the focus on corporate responsibility and business’ role in society, with more CEOs taking public stands on social issues. Ongoing disruption and uncertainty and deeper board engagement in strategy, risk, and environmental, social, and governance issues are also driving more frequent communication between the board and CEO.

Like the companies they oversee, boards today have to be faster and more agile in responding to the issues facing the company and its leadership. Such agility may also mean replacing an underperforming CEO more quickly.

“Infodemic” and the Difficult Road Back to Trust and Transparency

The problem seems intractable: Nearly half of Americans get their news and information from social media, where algorithms amplify and accelerate the spread of misinformation with little (if any) counterbalance. Distrust in the media abounds, with implications for news and the public square, corporate reputations, and the trust that drives open societies.

With traditional journalism struggling under cost-cutting and shrinking attention spans, the road back to trust and public discourse based on a “shared reality” will be challenging—particularly given the polarized and largely unregulated state of social media. Corporate culture, responsible algorithms, regulation, and renewed investment in journalism will all shape how today’s “infodemic” unfolds and whether the currency of trust regains its value.

Geopolitical Risks and Bright Spots Ahead

According to Eurasia Group’s Top Risks 2022, there’s plenty for companies and their boards to consider on the geopolitical front this year: China’s zero-COVID policy potentially impacting emerging market growth and global gross domestic product; the increasing dominance of Big Tech—giving rise to regulatory questions around data protection and privacy ahead of this year’s US elections; and the challenges of transitioning to a lower-carbon economy, for starters.

While the geopolitical landscape remains complicated, there are reasons for optimism. The COVID-19 pandemic is likely becoming endemic, and US-China tensions will likely be overshadowed by economic cooperation and codependencies. Moreover, most advanced industrial democracies are, by and large, faring well.

Climate Change and the Innovation Imperative

As the urgency of addressing climate risk mounts, innovation and the role that business plays are in the spotlight. The ascendency of nongovernmental actors in dealing with climate change (reinforced by limited progress at the 2021 United Nations Climate Change Conference in Glasgow) has moved climate conversations front and center in boardrooms as investors increasingly hold boards accountable for a company’s action—or inaction.

How companies prepare for a lower-carbon economy and respond to calls for greater transparency about their climate impact are increasingly integral to corporate risk, strategy, and reputation. Though bumpy and potentially transformational for many companies, the transition from fossil fuels to clean energy is already driving innovation and change—as a business imperative, responsibility, and opportunity.

Managing the Cybersecurity Trade-Off

The trade-off between security and usability will continue to challenge companies’ cybersecurity efforts in an increasingly complex and interconnected world. The shift to “remote everything,” acceleration of digital strategies, increasing sophistication of hacking, surge in ransomware attacks, and ill-defined lines of responsibility—among users, companies and their supply chains, and government agencies—have raised the stakes on cybersecurity as a critical business and reputational risk.

As companies strive to balance security, usability, and cost, the board’s understanding of technology issues, as well as the policies and geopolitical forces impacting cyber risk and data governance practices, will be critical—along with keeping the fundamentals in focus. What are the company’s most valuable digital assets, and how are they being protected? What is the company’s response plan—including disclosures to investors—for a major breach? Are the company’s talent and resources keeping pace with evolving cyber threats?

These macro trends will be pivotal to robust boardroom conversations as investors and other stakeholders sharpen their focus on corporate America’s leadership in the challenging months ahead.

John H. Rodi is leader of the KPMG Board Leadership Center.

Board Leaders Recalibrate for the New Reality

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