Political instability, global economic and regulatory changes – along with digital transformation – are all causing huge disruption in companies just as much as in society as a whole. And that’s prompted board-level people to rethink things too: by reordering the priorities in their board agendas.
Sustainability, corporate purpose and transparency
Executive and supervisory boards are having to face up to new socio-political questions. These include questions about the behaviour of the company and its management, the firm’s corporate purpose, and what contribution it is making to the common good. Achieving long-term company goals in a sustainable and socially acceptable way is key, as are communication and transparency. Management must demonstrate that it is capable of thinking long-term, communicating plans clearly, and understanding the effects that current trends are having on their companies.
Corporate social responsibility
Against this backdrop, a company’s CSR policies, as well as the mandatory examination of non-financial results by the supervisory board or the audit committee, play an important role. For supervisory boards, it is essential to discuss non-financial performance indicators with the executive board, as they are an important part of the company’s strategy. These discussions make it easier for the supervisory board to implement the appropriate measures. That should also be encouraged with incentives.
As a consequence, companies need to rethink board members’ remuneration. The important thing is to look at ways of simplifying the current reward model and communicating these to the markets in a more understandable way. This is even more important in light of the fact that that the models are complex enough as it is and that incentives for handling non-financial KPIs will increase complexity further.
Corporate culture and talent management
Even if a company has implemented rule-driven control processes, such as risk management, internal audits and compliance management, that doesn’t mean it has good corporate governance. The real key is the corporate culture – and that starts within the supervisory board. Talent management is another item that’s high up on the agenda. The ability to recruit, develop and retain the right talent is a decisive competitive factor across all industries. That’s why executive and supervisory boards need to discuss their company’s HR strategy and development programmes.
Board appointments and leadership
The right culture is an essential part of good board practice. This is particularly true when board members don’t limit their involvement to the strict fulfilment of their duties, instead going beyond these to find ways they can contribute real value to the company. The watchword here is leadership: it underpins board members’ work and fundamentally changes their perspective on the work they do. The important thing is to rethink things and demonstrate their entrepreneurial spirit.
The opportunities and risks of digital transformation have an equally important place on the board agenda. The top issues are new digital products, building digital skills, talent management, data protection and sovereignty as well as the internet of things.
Cyber-risk and data security
Against the backdrop of digital transformation, data protection and information security are becoming even more important. Supervisory board members must ensure that the executive board implements the right technical measures as well as an appropriate risk strategy. This is particularly key since the EU General Data Protection Regulation came into effect on 25 May.
In summary, executive and supervisory board members have interesting times ahead of them, especially as the topics on their agenda are becoming increasingly varied. They would be well advised to tackle these new points proactively for the good of the company.
About the Author
Daniela Mattheus has been with EY since July 2012 and is a partner heading up the Corporate Governance Board Services in Germany, Austria and Switzerland and in EMEIA. In this role, she advises supervisory and executive boards and is responsible for the information and network platform EY Governance Matters® (www.governancematters.de).