After a couple of truly extraordinary years for businesses, what are the top priorities on the board agenda in 2022? Here are my suggestions of issues that effective directors should be considering as part of their board responsibilities.
Ten board priorities for 2022
1. Revised strategic plan and KPIs
The pandemic has recut most plans, and management should be coming forward with shorter term plans that can be overseen by the board. Good boards, especially during disruption, will ensure management brings forward a staged plan, with board input, that reflects changing circumstances. Values, purpose, vision, mission, business model, value drivers, key performance indicators, and risks, should all be reviewed, in writing, and approved by the board. Boards should be moving from crisis to strategy and performance oversight under disruption.
2. Digitisation of the business model
Boards should be thinking up and out, and never be in denial. I am seeing almost 50% of business models now comprising digital and data. Every organisation has a business model, whether management makes it explicit for the board or not. Remote working has accelerated digitisation, and boards should understand AI, IoT, blockchain and automation’s impact on the company’s business model. Boards that are very good will link the business model to directors’ skills.
3. Revised risk appetite framework and control assurance
Steady state risks have been replaced with supply reliability, inflation, succession, labor costs and retention, data integrity, economic, employee safety, social expectations, climate, digitisation and regulation. As the risks change, the duty of care follows, with good boards having lines of sight to internal controls and assurance that the controls are working, as a prudent director under similar circumstances. Boards that wait, or do not act when risks change (including climate, discussed next), are at risk and may become a litigation or investor target.
4. A path to net zero
If a board delays action on the company’s path to net zero greenhouse gas emissions for want of more regulation and certainty, activist investors and plaintiffs’ attorneys may target (i) the company for not disclosing true climate risks; (ii) directors for breaching their duty of care by not acting as a prudent director would act under similar circumstances; and (iii) directors for not adequately considering the long-term interests of the environment under recent legal changes. Short-term steady progress to net zero carbon emissions, that is performance and industry benchmarked, using standard setters, and is accurately disclosed, will be on good boards’ agendas in 2022.
5. Data security
When exfiltration and encryption have occurred, and threat actors demand a ransom be paid in cryptocurrency on the dark web, the company faces significant liability. NIST- and Five Eyes-benchmarked internal controls to protect the perimeter and crown jewels, with regular back up and restoration testing, avoids becoming a target and limits liability. Weak work-from-home cyber-hygiene and human error are addressed by good boards.
6. Retention and succession risks
Omicron variant illness (or worse if unvaccinated) and isolation is real, within key functions and sectors of at-risk employees. CEOs are unexpectedly resigning because of exhaustion. The HR committee should be reviewing contingency plans for key officer illness and emergency plans for the CEO because of health, resignation or otherwise. Having an evergreen list and high potential talent on the internal bench should be reviewed by the committee and brought forward to the board for a full discussion in early 2022.
7. Employee well-being and safety
Loneliness, anxiety, depression, substance abuse and radicalisation are going up under Covid-19 and remote working. Vaccine mandates, work-from-home policies and practices, and safety and wellness risk are not the prerogative of management and immune from board oversight. Wellness outreach, CEO mindset, science updates, exit interviews, culture surveys and internal controls over an airborne virus are now standard reporting in leading boardrooms.
8. Robust, accurate and disclosed ESG
Has the board approved which items within E, S and G will be the focus of management? Were the items strategic, peer and industry benchmarked? When the items were approved, were the performance measurements approved also, and independently audited against third-party standards? Will performance by the company against the standards be full, true and plain? In their strategy for 2022, boards should prepare for significant investor demands of all the above. Assume also that any cherry-picking or sugar-coating by management will be detected and acted upon by investors.
9. Financial oversight and stress-testing
As Omicron rages, has the board requested stress-tested financial statements under prolonged adverse conditions? Director duties receive enhanced scrutiny under financial distress, and boards are obligated to act even when management does not. Boards should pay particular attention to loan covenants, fair treatment of creditors, aggressive accounting, contractual obligations, impairments, deferrals, related party transactions, compliance with conditions of receiving government aid, insurance obligations, management forecasts and disclosure obligations.
10. Saying ‘thank you’
The last two years have been truly extraordinary. Board chairs tell me that an important item on their board’s agenda now is leading by example and saying “thank you”. So, say thank you, authentically, to directors, to management, and to employees (especially health care, educational and customer-facing staff) for their extraordinary sacrifice in the face of ongoing adversity.