The role board directors of public companies play in providing oversight and governance around business strategy, investments, and policies—and their focus on emerging issues—has reached new heights, according to the findings of a recent board governance survey.
“To describe 2019 as a turbulent year for companies would be an understatement,” said Amy Rojik, BDO USA’s national assurance partner - communications and governance. “Now, more than ever, public company board members are providing a steady hand through strategic direction, oversight, and risk management, making them an essential voice when planning for issues from digital disruption to market volatility.”
Boards of directors and management teams have no shortage of issues to address as they begin discussions on 2020 business strategy and risks. Chief among them: the economy. According to BDO’s 2019 Board Survey, 48 percent of 180 corporate directors of public companies surveyed said they have a strategy to address a potential economic downturn, and a plurality (30 percent) said it is the most discussed issue in their boardroom.
The trade war and resulting uncertainty has also been a major issue for boards of directors, with 48 percent citing a high or moderate impact to their organizations. Almost a third (29 percent) are considering other countries for sourcing products and materials.
“While businesses have taken a reactive approach to tariffs in the past, more proactive planning will be essential for the coming year, as the 2020 U.S. election is likely to create additional turbulence around the issue,” BDO said. “Boards should ensure that management takes into account their companies’ total tariff liability in their strategy and risk mitigation plans.”
“Trade policy in 2019 has brought more questions than answers, and companies are understandably concerned about the volatility of expenses and tax exposures,” said Damon Pike, BDO’s customs and international trade services leader. “Boards are right to prioritize this issue and keep an open mind about potential actions to mitigate exposure and risk. Trade issues in 2020, a U.S. presidential election year, promise to be just as tumultuous as 2019, if not more so.”
Boards also continue to focus on diversity in the boardroom. Sixty-seven percent surveyed report high or moderate levels of diversity on their board.
As technological innovation and disruption continue to reinvent the rules of business, board directors have ramped up their focus on digital transformation strategies, with 68 percent of directors saying they have a digital transformation strategy in place. To address digital disruption, boards are primarily increasing capital allocation to digital initiatives, developing a roadmap, and hiring board members with relevant oversight expertise, according to the survey.
Data privacy also remains a chief concern for boards, with 46 percent saying they are briefed at least quarterly on data governance. Almost half (47 percent) have implemented or updated internal privacy policies, and 43 percent have expanded data privacy resources and budgeting in the past year.
“The new standard in data governance is not just privacy, it’s ethics,” said Karen Schuler, BDO’s governance, risk, and compliance national leader. “Boards should ensure not only that companies are prepared to comply with current and developing data privacy regulations, but that they are implementing a holistic data ethics program with a framework that guides data ownership, transparency, consent, privacy, and financial value.”
Taking a conscientious approach to cyber-security is also essential as the threat landscape evolves, indicated by the 83 percent of respondents who said their companies increased their investment in cyber-security in the past year. But investment is only part of the solution. Only 24 percent of board directors said they are highly familiar with their company’s data breach response plan, and 39 percent are only somewhat or not at all familiar with it. “With more than one-in-five directors reporting that their company experienced a breach in the past two years, it’s critical that management and the board be well-versed in their company’s digital risk profile, mitigation, and response efforts,” BDO said.
Transparency and sustainability are growing priorities and increasingly connected to reputation and value, according to the survey. Overall, 17 percent of public-company boards indicate they issue ESG disclosures today, with higher concentrations (35 percent) of large and mid-cap companies reporting they do so. “With mounting regulatory, cultural, and generational pressures,” BDO said, “we anticipate these reports will become both more prevalent and more important to company performance.”