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On the board's agenda
Top of mind topics for board members
The Center for Board Effectiveness is pleased to present On the board’s agenda, a bi-monthly publication focused on topics that are top of mind for board members.
The workforce takes center stage: The board’s evolving role
As organizations respond to recent events related to COVID-19 and social justice movements, many strategic businesses, operating, and investment plans for 2020 and beyond have become irrelevant, impracticable, or both. These events have challenged the status quo. As a result, for boards and managements, the ability to lead in highly adaptable and decisive ways is now on the front burner.
After considering the unprecedented challenges of 2020 in the context of preparing the 10th annual report on Human Capital trends, Deloitte released two reports in May 2020: our regular annual report on the top 10 trends for 2020 (The social enterprise at work: Paradox as a path forward) and a special report on the 2020 trends with a focus on the COVID-19 pandemic (Returning to work in the future of work: Embracing purpose, potential, perspective, and possibility during COVID-19). The special report, on the intersection of human capital trends and priorities against the COVID-19 pandemic, is the backdrop of this edition of On the board’s agenda.
As we approach the end of 2020, the realization is sinking in that the COVID-19 pandemic is not a passing storm, something to be waited out before we return to a familiar business rhythm and routine. Rather, the pandemic is a fundamental challenge to strategic planning and a foundational shift in the way organizations operate. How management pivots not only business and technology strategies, but also the approach to the future of work, will determine whether the organization can prepare and position itself for future success. This means that adaptability, leadership, and the workforce need to be at the top of the agenda.
The COVID-19 pandemic has been a disruptive wake-up call that organizations need to be prepared to face. While the disruption, and those that follow, may be distinct in its own right, disruptions share critical commonalities: (1) they come without warning; (2) they require a high level of leadership acumen; and (3) their outcomes are heavily dependent upon their impact on and the response from the workforce. As a result of this new reality, the next two years are likely to be a unique period of restructuring for organizations, a time to challenge the status quo and reset the foundation. Organizations have the difficult challenge of rethinking and reframing structures that were traditionally built on scale, efficiency, and predictability to now focus on resiliency for an unknown future on an unknown timeline.
Leadership in turbulent times: Better foresight, better choices
A global pandemic shuts down normal life around the world. Market volatility creates price swings not seen in nearly a century. Millions of people turn out to protest racism and social injustice and call for meaningful and lasting change.1 To many, the world feels more turbulent and uncertain than it ever has. Many are left to wonder: How might business and society be remade as a result?
Although it is impossible to know precisely what the world will look like in the coming years, companies can ill afford to do nothing until the future becomes clear. As renowned management scholar Peter Drucker once said, “the greatest danger in times of turbulence is not the turbulence itself, but to act with yesterday’s logic.” 2
Boards can play a key role in guarding against that danger, and it is critical that they collaborate with management to make use of time-tested tools to help them improve resilience in a rapidly changing landscape. Scenario planning—a technique specifically created to navigate uncertain futures—is one such tool that boards and leaders can rely on, to help their organizations do more than simply react to and recover from the recent turbulence. Effective scenario planning can help organizations adapt to a future no one can predict and position themselves to thrive in the long run.
1 On the board's agenda,Leadership in turbulent times: Better foresight, better choices
2 On the board's agenda,Leadership in turbulent times: Better foresight, better choices
ESG and corporate purpose in a disrupted world
Even before the world was disrupted by COVID-19 and current events calling for a greater focus on social justice, corporate America was already at an inflection point with respect to its role in society, facing louder and more widespread calls for businesses to consider a broader range of stakeholders. From the groundswell of support for shareholder proposals on environmental and social matters starting in 2017, 1 to the August 2019 statement of the Business Roundtable, 2 to continuing pressure from prominent members of the investment community, the conversation on the purpose of the corporation has continued to gain momentum.
While it remains to be seen whether we are witnessing a permanent transition from the primacy of shareholder capitalism to the inclusion of stakeholder capitalism, the above and other developments have had a profound impact on the corporate community’s approach to environmental, social, and governance (ESG) issues. In addition to increasing demands of primary stakeholders, defining and integrating corporate purpose and ESG objectives will require companies to evaluate a wide range of decisions through a multistakeholder lens, leading corporations to prioritize groups that once might have been viewed as nontraditional or secondary stakeholders: employees, customers, suppliers, communities, and other affiliations.
Early in the pandemic, some questioned whether, how, and to what extent companies would embrace and sustain commitments to ESG principles and corporate purpose.3 However, if it was not clear early on, the pandemic and the social justice movement have magnified the effect that environmental and social forces can have on business, emphasizing the impact of ESG on strategy and risk. For board members, the oversight of strategy and risk are key elements of how fiduciary duties are executed. It is, therefore, critical that board members understand how corporate purpose and ESG principles are considered and effectively integrated into the strategy and enterprise risk management efforts of the companies they serve. Likewise, it is essential that directors also understand the opportunities afforded to companies that remain true to their corporate purpose and ESG strategies to be rewarded by the market for demonstrating greater resilience and preparedness for the next crisis.
1 ESG and corporate purpose in a disrupted world, On the board’s agenda, July 2020.
2 ESG and corporate purpose in a disrupted world, On the board’s agenda, July 2020.
3 ESG and corporate purpose in a disrupted world, On the board’s agenda, July 2020.
The board’s role in guiding the return to work in the future of work
We began discussing this publication in January 2020, before global pandemic and social unrest became central topics of everyday conversation. The impact of COVID-19 is devastating at the individual, local, national, and global level. It has created huge immediate changes to how and where people interact, and how business is done. For many organizations, it has also thrust the future of work (FOW) to the forefront, as management and workers grapple with changes today and prepare for a different and uncertain tomorrow. In many ways, the current environment has illuminated possibilities and opportunities that many organizations previously shied away from, but that are now accelerating the pace of change as management meets the challenges of now in preparation for now and the future.
While organizations continue to work through the near–and long-term effects of the pandemic, one of our initial observations is that companies leaning in on their future of work agenda appear to be better positioned to weather the impacts of this global disruption. These companies have strategized and planned for the what, who, where, and how of a shifting work landscape, proactively expanding their future of work portfolio over time, providing options for ongoing “forever” virtual work options, addressing, and bolstering immediate needs for technology and connectivity, and implementing new ways of looking at jobs and interactions with the organizational ecosystem.1 The pandemic appears to be accelerating these companies into the “new normal”—navigating the disruptions while improving their market positioning and brand. We refer to this strategy as “returning to work in the future of work”.
As organizations look to contend with the changes precipitated by the COVID-19 crisis, boards have an integral role to play in understanding the immediate needs and responses of the organization while challenging and supporting management in actions to drive long-term security and sustainability. The focus changes from “what is the future of work?” 2 to “what actions are imperative for the board to support the FOW agenda?”.
1 The board’s role in guiding the return to work in the future of work, On the board's agenda, July 2020.
2 The board’s role in guiding the return to work in the future of work, On the board's agenda, July 2020.
What the board needs to know about blockchain technology
Now more than ever before, there has been an increased focus on how new technologies can improve existing business processes. Blockchain is one such technology. The unique capabilities of a blockchain can increase the transparency, record integrity, efficiency, and effectiveness of transaction processing and recording.
To date, the adoption of blockchain has largely been within the financial technology (fintech) industry, focused on transacting cryptoassets. However, more organizations in more sectors—such as technology, media, and telecommunications; life sciences; health care; and manufacturing—are expanding and diversifying their blockchain initiatives. New use cases for blockchain technology that span across multiple industries continue to be identified. Organizations are seeing the potential in using the technology as a connecting platform that can enable many business processes, including the financial reporting process. A recent Deloitte survey revealed that 55 percent of executives identified blockchain technology to be a critical priority for their organizations.
Considering the potential changes that this technology may bring to business and operating environments—both as an enabler and as a driver—it is prudent to consider both the risks and benefits of using a blockchain and its impact on an organization’s internal control environment.
Artificial intelligence and ethics: An emerging area of board oversight responsibility
The unprecedented situation the entire world finds itself in due to the COVID-19 pandemic presents fundamental challenges to businesses of all sizes and maturities. As the thinking shifts from crisis response to recovery, it is clear that there will be a greater need for scenario planning in a world remade by COVID-19. Artificial Intelligence (AI) will likely be at the forefront of driving data-driven scenario planning given its ability to deal with large volumes and varieties of data to match the velocity of a rapidly changing landscape.
Even before the pandemic, the areas for which boards of directors have oversight responsibility seemed to expand on a daily basis. The last few years have seen increased calls for board oversight in areas such as cyber, culture, and sustainability, to name just a few areas of focus. And the challenges posed by the pandemic have further increased the number and importance of boards’ responsibilities. In addition, boards will increasingly be called upon to address an emerging area of oversight responsibility at the intersection of AI and ethics.
Governing through the pandemic
It is too soon to know whether, how, and to what extent the COVID-19 pandemic will lead to permanent changes—the “next normal”—in how companies are governed or if, post-pandemic, we will go back to the way things were just a few short months ago. In the meantime, governing through the pandemic and the post-pandemic recovery raises a host of new challenges, while also offering potential opportunities. The purpose of this On the board’s agenda is to consider some ways in which boards may get through the pandemic and to contemplate the future of governance in a post-COVID-19 world.
1 Punit Renjen, The heart of resilient leadership: Responding to COVID-19, Deloitte Insights, March 16, 2020
The atmosphere for climate-change disclosure
Discussions and debates regarding the importance of environmental, social, and governance (ESG) disclosure have continued their fast-paced trajectory over the past several months. In January 2020, the CEO of the world’s largest asset manager stated, “. . . we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”1 Specifically, BlackRock is asking the companies they invest in on behalf of their clients to:
- Provide disclosure in line with industry-specific Sustainability Accounting Standards Board (SASB) guidelines, or equivalent standard, by year-end.
- Disclose climate-related risks in line with the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures’ (TCFD)2 recommendations.
1 Larry Fink, CEO, BlackRock, CEO letter: A fundamental reshaping of finance, January 14, 2020.
2 The United Kingdom’s FSB created the TCFD due to concerns of systemic risk in the financial system related to climate change, including that because such risk is both contested and long term, it may not be well understood and not considered rigorously enough by many organizations. The TCFD’s 31 members were chosen by the FSB to include both users and preparers of disclosures from across the G20’s constituency, covering a broad range of economic sectors and financial markets. The TCFD seeks to develop recommendations for voluntary climate-related financial disclosures that are consistent, comparable, reliable, clear, and efficient and provide decision-useful information to lenders, insurers, and investors.
The strategic audit committee: A 2020 preview
To anyone familiar with the role and responsibilities of audit committees, it will come as no surprise that the audit committee is sometimes called the “kitchen sink” committee. That is because at many companies, any topic that isn’t clearly the responsibility of another committee or the full board frequently ends up on the audit committee agenda.
Due to this and other factors, the audit committee agenda is usually jam-packed, and audit committees need to be strategic, prioritizing the matters they handle and using their time efficiently and effectively. The need for this strategic approach will almost surely increase in 2020, as the number and complexity of issues faced by boards and audit committees continue to grow.
The 2020 boardroom agenda: More topics, more oversight
The role of the board of directors and its committees is rapidly and constantly expanding. New matters seem to arise all the time, and the board is viewed, in the court of public opinion if not in courts of law, as being responsible for everything the company does or does not do.
As both a result and an example of this perception of the board’s role, it is not surprising that when anything negative happens to a company, the first question asked is often “Where was the board?”
There are many items that have been on the board’s agenda for many years. These include oversight of risk, strategy, and executive compensation. At the same time, a number of items appearing on board agendas in recent years have taken up more of the board’s time and attention. These include board composition, culture, and shareholder engagement. And the newest items that boards are grappling with include challenges such as the role and responsibilities of the company in society and sustainability, which itself includes topics ranging from environmental concerns to employee activism and more.
This edition of On the board’s agenda discusses some of the matters expected to occupy much of the board’s attention and time in 2020. This list is not all-inclusive, nor should it be, as there are many matters that will be the subject of board focus, as well as a wide range of new matters that will likely arise and command the board’s attention.