How boards are navigating 2020

A few months into 2020, and it’s clear that boards of directors have their hands full as they address a variety of risks and challenges. With mixed economic and social signals contributing to an uncertain business environment, companies should consider both defensive and offensive strategies.

In their oversight role, boards of directors are well-placed to encourage companies to plan for future challenges while driving immediate business results. This two-track strategy requires management to protect assets and optimize operations while taking prudent risks that can increase opportunities for growth. The uncertain environment also requires boards to plan for a wider range of possibilities. They should consider having substantive strategy discussions on an ongoing basis — not just once a year — and identify specific trigger points for action.

The EY Center for Board Matters recently released a report highlighting eight board priorities for 2020. The following four particularly stood out to me as a former CFO who has been talking to board members about their current agenda.

Prioritize cybersecurity and data privacy

As businesses become more digitized and big data and machine learning are more prevalent, CEOs continue to be concerned about cybersecurity. These issues are being addressed by regulations, and data protection and privacy laws quickly evolve within the US and abroad.

Boards can set the tone that every area of the business — not just IT — has a role to play in cybersecurity and data privacy. They need management to explain the digital assets and data at risk, the probability of risk and the estimated cost of a breach. These assessments enable boards and management to define the appropriate risk appetite for the business.

Boards and companies also need to disclose how they are addressing cybersecurity issues. Stakeholders are demanding additional transparency, and expanded disclosures can increase trust overall.

Redefine and better communicate long-term value

When for-profit corporations focus on how they can serve non-investor stakeholder interests while also serving investors, they can improve their competitive positioning, enhance stakeholder trust and create long-term value. This is an increasingly popular way to look at purpose. Boards should look at how intangible assets, such as culture, governance and innovation, contribute to corporate value. Human capital can make up more than half of a company’s market capitalization, so it’s imperative to communicate its importance to investors. Boards should then encourage management to identify, measure and communicate value through valuation frameworks, metrics and narrative disclosures.

When boards help companies to better communicate what they value over a longer term, investors and other stakeholders are more likely to redefine their expectations, even in periods of uncertainty.

Accelerate the talent agenda and activate culture as a strategic asset

Today’s workforce is changing rapidly. Five generations of workers bring different expectations and skill sets to their jobs, and companies are increasingly using contingent, contract and remote workers. While there are distinctions between industry sectors, all workers want their career to be purposeful and align with their values.

Companies are preparing themselves for the future of work by aligning their purpose, vision, mission, strategy and culture. They are re-examining their workforce development programs to empower future leaders. They also are taking a closer look at how people feel a sense of belonging at work — because people who feel like they belong are more motivated and engaged.

Boards need to understand these issues and trends, as well as how companies are addressing them. Their oversight should include analyzing employee engagement scores, diversity and inclusion metrics, how the company is discussed on social media and employee exit interviews. And on-site visits couldn’t hurt either!

Take a continuous improvement approach to board effectiveness

With the world around us changing so rapidly, boards need to continuously assess their competencies and practices so they remain effective. Every new technology, business practice and risk add to the board’s agenda, so board members need to develop a culture of continuous learning. In this manner, boards should seek information from independent sources, so they are able to complement what management tells them.

When boards take honest evaluations, they can identify areas to improve performance and optimize composition in ways that can enhance long-term value. Explaining this process at a high level to investors and other stakeholder can also improve understanding and trust.

Each of these priorities can help board members navigate 2020, and I encourage you to check out the rest of the report to see how enterprise risk management, geopolitics and environmental, social and governance strategies can also affect a company’s competitive position. This new decade will likely bring unprecedented change, requiring boards to reimagine their roles and set new precedents to embrace what’s next.

The views expressed by the author are their own and not necessarily those of Ernst & Young LLP or other members of the global EY organization.