Living in "interesting" times: The 2024 board agenda has been saved
Living in "interesting" times: The 2024 board agenda
On the board’s agenda, January 2024
Over the course of the next year, board members could find themselves living in interesting times. The Oxford English Dictionary defines interesting as “having the qualities which rouse curiosity or engage attention,” which seems an apt characterization for 2024. At present, the world continues to grapple with macro-level issues such as geopolitical risks and economic volatility. Advances in technology and other business processes continue to open the door to numerous new opportunities and risks. And because of these forces, to reiterate the point: Governance seems poised to become even more interesting.
Viewing 2024 with an enterprise risk lens
While no one can know the future, it seems safe to say several large-scale risks could loom in 2024. Geopolitical upheaval, political instability, economic uncertainty, regulatory change, rapid technology development—just to name a few challenges—may be frequent items on the board’s agenda. In the current environment, the short-term fallout has the potential to be substantial. But in the longer term, how boards respond may be just as (if not more) impactful. Ultimately, the board’s oversight and governance actions shape the sustainability and resiliency of its companies in the face of risks and opportunities.
Applying an enterprise risk lens may be useful for boardroom discussions around the year’s upcoming governance challenges. In theory, enterprise risk management (ERM) processes evolve with the times and avoids becoming perfunctory. Periodic assessments of these programs, including whether an appropriate mix of personnel and business processes are involved, might be helpful to maximize ERM utility.
Risks and opportunities worth noting
Risk and strategy are evergreen areas of priority for board oversight. Accordingly, many of the matters discussed below fall into one or more of those categories, as risk often goes hand in hand with opportunity, and vice versa.
Geopolitical upheaval and economic uncertainty
As 2024 begins, the world is dealing with a series of major geopolitical conflicts. These confrontations have interacted with and amplified economic uncertainty in ways that have reverberated across the globe.1 To greatly oversimplify matters, the array of risks associated with such events may be hard to anticipate. For example, conflicts that involve embargos can result in price uncertainty, which may be a concern for any industry using commodities in their manufacturing processes.2 Other forms of instability, like political uncertainty, may also be considerations because of their effect on capital flows and cross-border investment.
These (hopefully) short-term issues could also interact with climate change —a challenge with a much longer time horizon. As a result of these macro-level risks of with varying timelines, companies could benefit from managing debt levels, costs, and margins. Strategies for this might include divesting or restructuring operations that are not providing sufficient returns, reducing the workforce, and similar actions.
Regulatory scrutiny and enforcement
Staying up to date on changes to regulations and compliance reporting is foundational for effective board oversight.3 Alterations to scrutiny and enforcement patterns —in either direction —can inject uncertainty into governance processes. When any regulatory action is taken, it can take some time to fully understand its longer-term impacts.
There are a few crosscutting regulatory updates in 2024 that may be worth a boardroom discussion, though priorities in this area often vary by industry. Of note, the start of the new year brings an array of new or updated rules in areas including disclosures on cybersecurity,4 10b5-1 trading plan requirements,5 recoupment of incentive compensation in the event of financial restatements,6 and the need for certain entities to report beneficial ownership information to the Financial Crimes Enforcement Network.7
Cybersecurity oversight is frequently listed as a top priority by board members —and it seems likely to remain there in 2024.8 Such “popularity” could be ascribed to the many flavors of risk that arise from cyber-related issues. For example, in the wake of adopting generative artificial intelligence (GenAI) and similar technologies, a company’s cyber assets may become even more appealing to malicious actors.
On a different front, regulatory scrutiny may be rising along with the volume of cybersecurity attacks.9 The US Securities and Exchange Commission (SEC) recently adopted rules requiring public companies to disclose their cybersecurity risk processes and details of certain cyber incidents.10 The regulations do not require disclosure on board cybersecurity skills (or the lack thereof). But as a practical matter, this type of skillset is highly sought after by boards across a variety of industries. Consider a recent survey of audit committees, where a minority (41%) of respondents said the committee had sufficient cyber expertise while a majority (63%) ranked it as a top priority.11
Generative artificial intelligence
Any discussion of 2024 seems incomplete without the mention of artificial intelligence. For boards, finding the right mix of governance processes, policies, and standards to use the technology responsibly at the enterprise level is a persistent challenge. That’s particularly true for GenAI, which seems to be the technology du jour of the moment.12
To be sure, its seeming omnipresence in business dialogues may be for good reason. With appropriate governance, the innovation opportunities for companies may offer a suite of benefits.13 There can be tremendous value in leveraging GenAI for efficiencies in everything from day-to-day operations to monitoring internal controls and beyond. At the same time, the challenges associated with GenAI are numerous and can have many layers. The potential for bias and hallucination that can occur when the technology is used, for instance, may create an array of induced risks.14
From operational improvements to customer acquisition strategy, the business world has long understood the value of “big data.” Historically, acquiring sufficient computing power to engage in this type of analytics carried a high price tag. For some organizations, the large upfront investment could be a challenge. But as big data has become a core component of emerging technologies like GenAI, such obstacles are getting smaller.15
In 2024 and beyond, a greater number of companies are likely to integrate their use of technology and data. For boards, the result of such efforts generally varies by company and sector. For example, it could be helpful to assess the benefits and risks of using it to simulate multiple scenarios across a range of business matters. Similarly, there are a number of notable benefits and risks to use of big data for transformative initiatives.16