Are you heading into 2023 expecting some modicum of predictability and consistency? Park that thought and, instead, prepare yourself for a year of head-spinning dynamism that’s likely to challenge even the most resilient leader’s skillset. The New Year’s headlines for organisations are likely to be dominated by topics including innovation, diversity and geopolitics, as well as artificial intelligence (AI), blockchain, and demands posed by the increasingly popular movement towards decentralised autonomous organisations (DAOs). In short: traditional organisational forms are becoming more vulnerable than ever before.
Issues surrounding diversity will also continue to advance at an ever-increasing pace, and equality and human rights should be high on the organisational agenda, particularly in terms of public awareness.
‘Have I been appointed because of who I am, or because I’m a woman?’ will provide increasing uncertainty for new board members, NEDs and general managers, who will have to overcome such doubts in order to fully realise their potential.
Similarly, age, ethnicity and religious diversity are criteria that organisations will be wise to pay careful attention to, while avoiding prejudging candidates, either overtly or covertly.
Geopolitics will continue to attract unprecedented levels of attention as Western interests push for regime destabilisation in Moscow, while the fighting in Ukraine sadly continues.
In the midst of this global uncertainty, potential failures in ESG and sustainability will leave the leaders of 2023 to answer three essential questions:
1. How can I extract greater value from the resources under my care?
2. How do I balance gains against the potential for reputational risk?
3. How will my leadership make a difference?
There is a shorthand formula for the last question—‘the compelling argument (IQ), combined with the political skills (PQ) of negotiation, underpinned by emotional resilience (RQ) results in the most significant leadership difference’.
Those who get this right and make a unique difference will win the trust and buy-in of their colleagues and other most important stakeholders, ultimately becoming the leaders who are envied by all.
Kit Bingham, Partner and Head of Board, UK, Heidrick & Struggles
As ever, chairs and boards will face a difficult balancing act in recruiting new directors. On the one hand, the macro economic environment looks acutely challenging, so financial skills and those with operational expertise in terms of efficiencies and cost-effectiveness will be to the fore, as will individuals with City and investor-facing experience in terms of communicating a compelling equity narrative.
Labour relations promise to be another potential point of friction, particularly for companies with large UK workforces, as the cost of living continues to bite. Directors with strengths in HR and workforce engagement will therefore be of interest.
But boards can’t only live in the here and now. They must also consider the impact of AI and automation on their business models, not to mention sustainability and the implications of climate change. As they navigate paths to net zero and nature positivity, boards will need to engage a perspective that looks forward 30-50 years.
Most chairs only have 5-6 seats to fill in terms of non-executive appointments against a list of ‘must cover’ issues that could easily run to a couple of dozen items. It is no surprise therefore that chairs and boards seek senior business leaders who have operated at a top level and can offer experience across the full range of issues enumerated above (and more!).
But deep and wide experience is only half the battle. Equally critical is a willingness to learn. No director can be an expert across financial controls, cyber risk, new energy sources, digital transformation, and so on. So the best board members in 2023 and beyond will be those with the time and willingness to embrace continuous learning and self-education across a proliferating range of fascinating, challenging topics.
Dr Doyin Atewologun, Chartered Business Psychologist and Director,
Delta Alpha Psi
For many business leaders, it is likely that recent years have felt relentless, surfacing multiple—perhaps competing—issues, with which to contend. As we cast forward to the coming year, many leaders will crave some calm to the chaos.
While there is of course no single panacea to the present economic, social and environmental challenges, my hope is that business leaders can find a way forward through the big issues of our time by identifying multiplicative levers, such that headway in one area generates progress in another.
The complexities facing leaders are often intertwined, such as the links between climate change and social justice within industry’s environmental, social and governance (ESG) priorities. Research released by the FRC, Cranfield and Delta Consultancy in 2022 advises businesses to focus on enabling trust, role modelling transparency and embedding accountability to improve the representation of minority ethnic directors on UK boards.
I note the symbiotic link between these: transparent board appointment processes foster trust between stakeholders such as executive search consultants, board chairs and candidates for executive/non-executive director roles.
With trust and transparency, mutual accountability likely emerges organically and monitoring progress against goals is normalised. For 2023, business leaders should consider drawing on these three as guiding principles, to help them as they navigate any impending storms for the year.
What would I like to see happen in 2023 on North American boards? Here’s my top ten list:
1. Chair selection, term limits
Boards should have transparent board and committee chair selection criteria and term limits.
2. Entire value chain
The business model should be transparent to investors. Most company value is non-financial.
3. Pay for performance
If there is no business model, there cannot be pay for performance. Over-reliance on benchmarking makes for a poor board.
4. Changing risks
Boards that do not use technology for internal control and assurance oversight will face scrutiny.
5. Hybrid boardrooms
Technology investment should occur for virtual and in-person boardrooms.
6. Culture oversight
Boards should use tools for culture oversight: safe disclose, code, background checks, surveys, exit interviews, control assurance.
7. Risk-adjusted pay
Clawbacks should be tied to the ethical code and risk management—not misstatement.
8. Leadership, employee wellness, retention
Fatigue, anxiety, mental health and safety are board discussions. Good boards are preparing for legal changes requiring board oversight over wellness.
9. Financial and auditor attention
Debt policies, capital limits, stress testing, proforma scenarios, renewal of financial literacy, and term limits and independence of auditors are all things that good boards focus on.
10. Emerging, disruptive technologies
Boards should understand technologies to transform their industry. Otherwise, they are in denial.
Heading into 2023, data security will become increasingly vital for organisations, particularly in the area of blockchain—the shared ledger that records transactions and tracks a business network’s assets.
Blockchain is both clever and secure, promising significant benefits for a variety of industry sectors.
However, it still faces security challenges when it comes to the development of smart contracts—the programs stored on a blockchain that automatically execute agreements so that all participants are immediately certain of the outcome.
A key ideal of blockchain technology stems from its decentralised structure, which no central authority can control. Blockchain ‘decentralised autonomous organisations’ (DAOs) should offer near impenetrable security by reducing the ability of a single decision-maker to control or exert authority over the network.
However, after a detailed examination of smart contracts, it is apparent there is a major problem.
Despite claims that blockchain cannot be controlled by a single decision-maker, current flaws in the way smart contracts are written mean that certain weaknesses are open to being exploited, yielding an unwanted centralised authority. Leaders and organisations need to take note—developers could write a smart contract with centralised privileges that control the system, potentially involving a single user or organisation which has hidden powers to set token interest amounts, fees, or even withdraw money.
Our team are now in the process of rewriting the smart contract concept to take into account the vulnerability of ‘one owner control’ and recognise the risk of unwanted centralisation in blockchain.
I’d like to see 2023 being the year we don’t collectively shoot ourselves in the foot on executive pay in the UK.
There’s a lot that could go wrong. Executives might ask for pay increases that match those of the workforce, without anyone noticing until it’s too late that a 7% pay increase on £1m is more than twice UK median annualised earnings.
Remuneration committees could forget that they promised to apply discretion to avoid windfall gains when long-term incentive plans that were granted in the midst of the short-term Covid market crash three years ago pay out.
Bonuses for a not-too-bad 2022 could look tin-eared when announced into the teeth of a worsening UK recession and cost of living crisis.
On the other hand, investors could apply one-size-fits-all constraints on pay that continue to make UK listed companies ever less attractive for senior executives, who have choices about where they work.
High-performing executives and companies could become subject to virtue-signalling actions by investors keen to burnish ESG, and particularly S, credentials.
The potential for friction on executive pay has rarely been higher. Cool heads and smart minds will be needed to navigate a way through.