Prioritize Risk and Strategy, But Don’t Skimp on New-Age Concerns
A new Deloitte report sees directors increasingly focused on workplace issues and climate change.
For five years, Deloitte has been reporting on directors’ top concerns through its publication On the Board’s Agenda. In that time, some subjects have been a constant priority for board members, while new topics have been added because of changes in the societal landscape, such as the COVID pandemic. According to the latest version of the Deloitte report, 2023 will be another year in which old standbys compete for directors’ attention with matters that are relatively new to the board scene.
The topic of board composition is a constant for directors, but in 2023 it is expected that the question of what expertise is most needed on a board will be greatly influenced by two emerging issues. One is cybersecurity, with the SEC’s proposal on the topic driving directors to consider whether it is prudent to feature a cyber expert on the board. While many directors have been hesitant to stock their boards with cybersecurity experts, it will be difficult to resist adding a cyber specialist to the board should the proposal be adopted or even slightly altered.
Deloitte also predicts that boards will move away from the prioritization of CEOs and toward other C-suite officers, including chiefs of marketing, human resources and international operations.
Strategy and risk oversight are the most important roles of boards, with strategic meetings becoming more frequent and boards working to identify risks that are not immediately evident, such as the COVID pandemic and the war in Ukraine in recent years. To address this issue, Deloitte recommends that boards and audit committees take a closer look at their enterprise risk programs to make sure they are addressing the most up-to-date risks as opposed to performing a check-the box exercise.
Deloitte’s report also focuses on agenda items that have become more prevalent in private company boardrooms, including workplace issues, climate change and the corporation’s role in society. Once the sole province of management, workforce and workplace issues were thrust into the board spotlight by the COVID pandemic and continue there because of shifting priorities of the workforce. Employees increasingly value meaningful work, as well as flexibility of both hours and location. Private companies that model themselves after public corporations will also be on alert for new SEC disclosure requirements related to human capital resources, which are expected to be released in upcoming months.
With more stakeholders making demands related to climate change, private company boards are under more pressure to expand their oversight of their companies’ emission reduction efforts. With sustainability becoming an ever-larger issue on the public side — the report states that the SEC’s proposal on disclosure requirements in the area drew over 14,000 comments — private company boards will most likely have to determine sustainability goals. Do they want to ensure that their company will remain sustainable and grow, or are they looking to make a larger sustainability impact? (See Patagonia’s move toward making the Earth its only shareholder.)
The move by private company boards to help curb the effects of climate change brings about a clear question: What is the corporation’s role in society? Going forward, private company boards will have to determine how active they want to be in speaking out on social issues. They’ll have to determine whether it is dangerous to not speak up on certain topics because of the possible reactions from important stakeholders, including customers, communities and their own employees. And it will be the board’s responsibility to work with management to make sure they have a consistent policy on speaking out on social issues as well as a plan to make sure that outside societal factors are regularly discussed at board meetings.