Looking back at predictions made at the start of 2020 is a humbling experience. It is difficult not to resort to hyperbole from the other end of the calendar as we reflect on a year unique in the modern era. Comparisons have been made to times of war and previous epidemics, but each situation is unique to its context. COVID-19 is playing out against a backdrop of rapid technological innovation, instantaneous global communication, as well as considerable political and social upheaval. This means that the pandemic is by no means the only item on the board agenda as we move into a new year.
If one thing is certain, it is that boards and businesses have learned a great deal about themselves in 2020. It is crucial for boards and businesses to determine what they do with this knowledge and how they apply it intelligently to lead their organisations forward successfully. With that in mind, what are UK board priorities for 2021?
1) Resilience and Agility
While 2020 may have delivered a previously unknown degree of uncertainty for boards and businesses, a volatile climate existed even before the pandemic hit. It is a core board duty to ensure that organisations are prepared to navigate challenges from unexpected quarters and, considering that, boards will be focusing hard on corporate resilience and continuity.
There is a broad range of factors to consider, from assimilating the diverse effects of what looks increasingly like a long-term shift to home-working, to identifying exposure to supply chains in countries severely affected by the crisis and re-shoring where necessary. Boards must ask what has worked, what has buckled under stress and where investment is needed to build a resilient organisation.
High on the list, boards will be preparing for the potential impacts of a recession, despite the efforts of the Treasury to maintain incomes and stimulate spending. Boards need to avoid knee-jerk reactions, but at the same time focus on right-sizing the business and investing where needed. A measured approach is required as businesses must plan to meet existing demand without knowing exactly what future demand will be. There is far less certainty than usual in demand prediction as vastly different futures exist. These predictions depend on the discovery of an effective vaccine, its speed of rollout and whether consumer habits may have been permanently changed by the experience.
Real-time relevant data will be critical to supporting boards in a fast-changing situation. Directors need curated, accurate intelligence on which to build decisions and plans. In an information-heavy world, organisations will need mechanisms that deliver that data to directors just when they need it.
Critical to resilience and agility is the technology infrastructure that allows businesses to keep functioning during disruption. The onset of the pandemic saw digital transformation programmes with a 3 to 5-year period being rolled out in less than three months. In the aftermath of this acceleration, the board needs to be asking senior management the following: What still needs to be done, where further investment is needed and how the strategy for remote-working will evolve as a core pillar of operations, not just a stopgap.
The aim is to build a business that can survive and thrive whatever comes. For many, it requires a change in mindset and a willingness to step outside of the corporate comfort zone.
2) ESG, Diversity and Inclusion
At the dawn of the new decade there was already a groundswell of activity around environmental, social and governance performance. Investors were starting to stipulate targets for environmental performance and, increasingly, board diversity against a background of growing regulation and rising social activism. However, the ethical importance of ESG in corporate performance has been underlined by the impact of COVID-19.
The pandemic provided opportunities for many businesses who have stepped up their tactical ESG activities to support communities and diverted resources to producing protective equipment, for example. However, there is a strong sense that this must go beyond immediate altruism and translate to systemic and institutional change; this is where boards must lead.
This is viewed by many as a watershed moment, providing opportunities to scrutinise how we operate and “build back better”. Diversity and inclusion, much talked about but long under-represented in British board rooms, must be a priority. However, achieving substantive change is not easy. It requires boards to address the way they identify and recruit candidates for director appointments, acting with intention to promote talented individuals to executive teams.
This autumn saw the launch of an initiative from the CBI and backed by major businesses aimed at changing the ratio on race and getting more diverse directors on UK boards. Diligent also launched its Modern Leadership initiative, which connects high calibre diverse candidates with board director positions and helps organisations broaden their networks.
As they build ESG, diversity and inclusion strategies, boards need to look closely at their corporate values. “Profit with purpose” can only be achieved if the business has a strong grasp on what values and purposes it holds.
3) Cybersecurity Risk Management
Disruption brings risk across a vast range of factors that the board must consider, but the most pervasive of these is cyber risk. It crosses operations, third-party suppliers and IT systems to the extent that an interruption of technology infrastructure is, for many businesses, an existential threat. Additionally, there are punitive regulatory and reputational impacts of data breaches.
The cyber threat environment has intensified over the past year, with ransomware attacks alone escalating by 900% according to cybersecurity analysts. A distributed workforce has expanded the attack surface, creating a wealth of opportunity for cybercriminals to insert themselves into corporate networks for data theft and disruptive purposes.
Boards must ensure that they are equipped with the expertise required to challenge management teams on their cybersecurity strategy and accurately assess cybersecurity risk – both direct and emanating from third party suppliers. Cybersecurity risk management has been siloed in IT, risk management and compliance departments for too long. It will be a board-level priority in 2021 as reliance on technology continues to deepen.
As we noted back in 2018, few forward-looking discussions will take place without mentioning Britain’s exit from the European Union, yet back in 2018, few would have predicted that at this stage in the transition, there would be so little to say.
Just weeks from the end of the transition period and, at the time of writing, no deal has been reached. Boards whose organisations trade directly in Europe have been working – admittedly with limited clarity and detail – on strategies for adapting to the coming changes but currently it is exceedingly difficult to make solid plans.
Much of the work boards will undertake to build agile and resilient organisations is as much in response to the four years of uncertainty precipitated by the Brexit vote as to the global health situation.
A Final Note: A Values-Led Future in the Wake of COVID-19
It is unavoidable that all the significant issues facing boards in the coming year will be viewed through a COVID-19 lens. The pandemic will continue to send shockwaves across the planet for years to come.
We may find that some of the changes ushered in by the pandemic for expediency become permanent. Some of those changes may be good, others less desirable. The unintended consequences of actions taken in haste may not become apparent for a long time. As we see politicians struggling with governance in a climate where public scrutiny is immediate and the available data is immense and overwhelming, we also see the effects of knee-jerk responses and differing data interpretations.
Boards face similar challenges to governments, albeit on a smaller scale. In such a climate, it is the values of the organisation, amplified by the board, that provide the tiller with which to steer the ship. Boards and businesses have learned an immense amount about themselves this year. How they put that knowledge to use will be pivotal to how they move forward into a much-changed world.
As we gaze into a different kind of future, boards and organisations must focus on defining and refining those corporate values and honing them into purpose. Strong values provide the framework within which the organisation operates and inform how it responds to every challenge faced. While everything changes, it is consistent values that offer a north star by which to plot a course for survival and success.