Board Leaders: Rethink Strategy, Risk, and Stakeholder Focus
A turbulent 2020 forced businesses to rapidly adjust to a highly unusual business climate. Additionally, social justice movements have heightened and produced new urgency around diversity and inclusion initiatives throughout the year. As the possibility of returning to in-person work approaches, boards and the companies will have to make tough decisions regarding which of the practices adopted out of necessity in 2020 will be carried forward into 2021 and beyond.
As a result, 2021 will be a year of reinvention for businesses. The economic and geopolitical outlook, the future of capitalism and corporate intent, the board-CEO partnership, talent, society, cybersecurity, technical innovation, and digital disruption were among the topics that dominated the agendas of the board and committees. KPMG Views from the Boardroom 2021 Pulse survey report gives an overview of the issues that directors think will have the most impact on boards in 2021, as well as the areas where they believe their boards need to strengthen the most to effectively manage their companies.
As a result of the COVID-19 pandemic, the major trends that directors believe will have the biggest effect on their organizations in 2021 reflect profound changes in the ways companies do business. Companies that adapt quickly to the new normal will be market winners, allowing them to generate more value for investors. According to the report, 90 percent of directors believe that, considering recent events, the firm is reevaluating how it addresses the needs of key stakeholders, including investors.
Last year was an inflection point for social justice movements thus, Diversity, equity, and inclusion (DE&I) practices are now front and center for many organizations. Stakeholder groups, including large institutional investors, are demanding greater accountability for and disclosure on organizations’ DE&I efforts. But as per the report, only 8 percent of corporate America is making a strong flow through on its DEI and societal commitments on the other hand some directors are beginning to look for ways to bring the benefits of diversity to the board level itself i.e., to spend more time listening to diverse voices in the boardroom.
According to the Report 2021, cyber threats continue to rank among global risks. The COVID-19 pandemic has accelerated technology adoption, but it has also revealed cyber vulnerabilities and unpreparedness, thus exacerbating technical disparities within and between cultures. It is the top concern for CEOs in the asset and wealth management, insurance, private equity, banking and capital markets, and technology sectors. The increase of cyber threats and misinformation coincides with the rapid acceleration of many companies’ digital transformation during the pandemic is not slowing down.
The crisis has understandably displaced attention from other priorities, but climate change will not take a back seat even at the time of the global pandemic. The board’s responsibility for considering climate change and its associated issues is necessary as it evaluates corporate performance but as per the report, only 29 percent of directors believe that solving climate change will be a strategic priority for the company in 2021, while another 27 percent of CEOs say they are ‘not concerned at all' or ‘not very concerned’ about climate and 60% of CEOs have yet to incorporate climate change into their strategic risk management operations. In fact, at the country level, our findings show a moderately negative correlation between natural hazard exposure and corporate preparedness for climate-related risk.
The Securities and Exchange Commission (SEC) of the United States has stated that companies should prioritize new disclosure rules about ESG matters, sustainability, corporate governance, trade policy, and climate change regulation. Boards must consider both the risk posed by regulation and the increased regulatory enforcement.
These trends and priorities, which are discussed in detail in the 2020-2021 KPMG View of the Boardroom report, represents a world that has changed forever. Organizations and boards of directors should work to learn from and capitalize on the lessons of 2020 and the resulting trends to get a head start on whatever trends emerge next.
