The National Association of Corporate Directors releases its 2020 Governance Outlook: Projections on Emerging Board Matters, an annual road map to guide corporate directors and senior executives as they confront business and governance issues throughout the coming year.
The Governance Outlook report includes insights and guidance on the following themes: preparing for the next recession, strategic business risks, regulatory changes, legal risks, board composition, the digital frontier, ESG and engagement, and water scarcity risk. Contributions are from Baker Tilly, Broadridge, Ceres, Deloitte, Grant Thornton, Spencer Stuart and Weil, Gotshal & Manges, along with a snapshot of findings from the 2019–2020 NACD Public Company Governance Survey, released earlier this month.
Below is additional detail on topics covered in this year’s report:
- Board Projections for 2020 (NACD): NACD’s 2019 Blue Ribbon Commission Initiative, Fit for the Future: An Urgent Imperative for Board Leadership, provides tactics to ensure that the board and the leadership within the boardroom are able to have the flexibility they need to be prepared for the changing needs of the boardroom going forward. In fact, 68 percent of directors responding to NACD’s 2019–2020 Public Company Governance Survey indicate that over the next five years their existing strategies will become completely irrelevant, meaning board leaders need to work closely with management in order to ensure that the company is able to adapt for the future.
- Preparing for the next recession (Grant Thornton): US companies are bracing for a recession in 2020, with economic warning signs mounting. While it remains unclear whether a recession will indeed occur, and, if so, how significantly economic conditions will deteriorate, businesses are preparing for a potential downturn in the next 12 months. The analysis performed by Grant Thornton offers boards guidance on how to assess management’s thinking about and preparedness for a potential recession and how to continue successful innovation in a slowing economy.
- Strategic Business Risks (Baker Tilly): “Resilience” is key to defining how effective boards operate. Merger and acquisition (M&A) transactions, trade compliance, tax issues, and data privacy are key risks boards should prepare for in 2020. Boards must understand how both their own companies and their acquisition targets are dealing with the pace of change, innovation, and disruption in these key risk areas. A business model that is on strategy today may be off strategy tomorrow.
- Regulatory Changes (Deloitte): Boards should remain vigilant in their oversight role, staying informed of regulatory developments in a timely manner and understanding how their companies are monitoring and adjusting to regulatory changes.
- Legal Risks (Weil, Gotshal & Manges): The Caremark case set a very high bar for holding directors personally liable for failing to properly oversee their company’s affairs. As boards refresh their oversight agendas for 2020, there are useful lessons to be drawn from two decisions of the Delaware courts issued earlier this year that allowed Caremark claims to proceed beyond the motion to dismiss stage. Directors should ensure that the board’s agenda provides ample time, on a regular basis, to carefully evaluate the company’s overall risk-management framework.
- The Evolution of Board Composition (Spencer Stuart): Responding to the evolving demands on boards and a growing investor focus on board composition, many boards are diversifying perspectives in the boardroom. As a result, the profile and skill set of the director continues to shift. To remain an asset to the company and to be prepared to make a meaningful contribution to enterprise strategy and able to challenge management effectively, boards need to continually consider refreshment and seek out directors who can bring in much-needed knowledge and experience from the front line.
- ESG Engagement (Broadridge Financial): Broad groups of stakeholders will likely continue to make ESG demands of management and director “mindshare” in 2020 and immediately beyond. Developing new and robust ways of engaging all stakeholders is key to addressing growing expectations for corporate societal impact. Boards should ensure that their companies have identified the most relevant stakeholder groups and have a robust strategy to engage with them. Companies may want to give a higher profile to communications on their progress in ESG areas.
- Digital Frontier (Deloitte): Boards should consider the need for technology skills as part of their board composition and refreshment activities, making technology acumen a part of the selection criteria, in addition to other skills and experiences needed to support the business’s strategy. As macro technology forces collide and companies push beyond the digital frontier, curiosity about tech advances alone will no longer be sufficient, and directors may need to go the extra mile in becoming tech-savvy.
- Water Scarcity Risks (Ceres): Water risks are already impacting the corporate bottom line and affecting corporate operations and supply-chain performance. In 2018 alone, companies reported water-related financial losses to the tune of $36 billion. Directors should encourage management to assess whether water risks have a material impact on the unique circumstances of their businesses, and, if so, consider how these potential impacts should be integrated into corporate strategy.
Visit: www.nacdonline.org/outlook to download your copy of the report.