As the world continues to grapple with the pandemic, it’s not far-fetched to assume that we’ll still be dealing with a degree of economic disruption in 2022. For boards and senior executives, this means another year of having to pivot and adjust to rapidly shifting market and environmental conditions. The challenge, however, is to be able to balance short term objectives with long-term priorities.
To help meet this head-on, we highlight several critical topics for boards in 2022.
DIGITAL TRANSFORMATION
The global pandemic has become a catalyst for companies to shift to digital processes — whether as a response to market pressures, operational sustainability, or long-term viability.
In this context, it’s not surprising for 58% of survey respondents of a Gartner study to state that digital transformation will remain a key strategic priority over the next two years. According to the report, with the investment in digital technologies over the last 12 to 18 months, companies are now validating their strategies and working towards ensuring a return on investment.
For boards, this means that the “core focus is now on technology integration and creating a more enduring and systemic digital economic architecture, where technology is infused throughout the business and drives business outcomes.”
In effect, digital transformation will be an ongoing conversation for boards, and will not likely be absent from board meeting agendas anytime soon.
CYBERSECURITY
A 2021 Harvard Business Review article cited a survey stating that 83% of board members identified strengthening cybersecurity for their organisations as a strategic priority. This comes as no real surprise since organisations have had to respond in an agile fashion to balance cybersecurity risks with their expanding IT infrastructure and digital transformation efforts.
For as long as companies adopt digital processes, cybersecurity will be a concern for boards.
Boards will have to revisit their cybersecurity playbooks insofar as it affects risk management activities. Here are some upcoming trends that may have an impact on the security and risk postures of companies in 2022:
a. New laws and regulations
Governing bodies in the EU, and the US government as of late (e.g. the Executive Order from US President Biden that seeks to protect Federal Government Networks) will likely implement even more regulations and/or laws to address attacks and data privacy breach requirements.
According to the CPO magazine, “there will most likely be increased emphasis on financial reporting aspects when it comes to privacy, including the cost of a breach to the organisation.”
b. Increased Liability
The same CPO article states that as cybersecurity continues to become a primary focus for boards, there will be a proportional increase towards liability. Board members can be held liable for breaches of the duty of (risk and security) oversight in the form of shareholder derivative suits.
c. Riskier Cybersecurity Landscape
There is a heightened need to be proactive against bad actors. Boards will have to ensure that their organisations place ample attention on cybersecurity principles to protect itself from cybercriminals. In 2022, we can expect the increased use of ransomware, as well as attacks directed at supply chains of companies.
TALENT ACQUISITION
Technology transformation has accelerated the need for companies to address workforce challenges. Boards recognise this. Gartner states that workforce issues will be one of the top strategic priorities of boards for 2022.
Digital transformation has spurred the demand for software to be written, managed or implemented. As more companies go digital, It can become a challenge to recruit and retain IT personnel. The issue is two-pronged: first, companies require individuals with highly-specific skillsets, and second, qualified candidates have more employment options than ever.
Boards will have to think creatively about meeting its talent acquisition goals. Without the necessary talent, all strategies fall to the wayside.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) MATTERS
ESG will be one of the top 3 board of directors’ priorities this year, up by 100% from last year.
It should not be a new topic for many, given the last two years have been marked by environmental disasters such as wildfires and flooding, calls for social justice and awareness, as well as real demands for transparent and accountable leadership from executives and board members.
It will be increasingly difficult to place ESG on the backburner especially since companies now face mounting pressure to comply with regulatory requirements, particularly when it comes to disclosure:
The EU has been pushing forward with initiatives for sustainability reporting, requiring more granular disclosure across a “wide range of sustainability matters from companies wishing to operate in or with the EU.”
As for the US, the Securities and Exchange Commission (SEC) chairman has stated that he wants mandatory disclosure on climate risks, and has instructed the agency to move this rule forward with the agency.
More regulations are expected to follow. The bottomline is that boards should continue to be clear, comprehensive, and authentic when integrating ESG into their business strategy. It should acknowledge new or existing risks, and be able to identify opportunities for value creation.
DIVERSITY, EQUITY and INCLUSION (DEI)
Boards will be tackling DEI matters this year, with regulatory bodies pushing for more diverse representation in boards.
In the UK, the Financial Conduct Authority (FCA) has launched a consultation for proposed changes to its Listing Rules (LRs), among them are the following:
- The FCA proposed that at least 40% of company boards should consist of women.
- In addition, the FCA said companies should have at least one woman holding a senior board position.
- The regulator also proposed that at least one member of a company’s board be from a non-white ethnic minority background.
The financial regulator said it wanted listed companies to publicly disclose whether they had met specific board diversity targets in their annual financial statements. If not, companies would have to explain why they had failed to meet these goals, also known as a “comply or explain” requirement.
As for the US, the NASDAQ has issued a diversity policy along those lines as well. It will require roughly 3000 companies listed to hire at least one woman on their board, along with one person who is racially diverse or identifies as LGBTQ. It also requires listed companies to break down the demographics of their board.
Currently, 75% of companies do not meet this requirement.
CONCLUSION
While these topics aren’t entirely novel to many boards, they will continue to be in the spotlight for this year, and perhaps beyond. It’s apparent that the momentum of success shifts to organisations who are cyber-resilient, quick to digitally adapt, and lead with corporate values that reflect sustainability, inclusivity, and responsible leadership.
The stakes are high. There are shifts, no matter how incremental, towards holding companies accountable to sustainable economic and social value creation. Priorities may change, but the topics discussed above should make their way into the board’s meeting agendas. Boards who are proactive and engage in these issues — even in this downturn — position their organisations for long-term success.
Carissa Duenas