Directors' alert: The six top issues for 2012
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The years since the 2008 financial crisis have been called the worst global economic downturn since the Great Depression of the 1930s.
Many companies’ initial response to the financial crisis was to employ the same strategies that carried them through previous recessions – downsizing staff, reducing operations and postponing investments until economic conditions returned to normal. Today, waiting until conditions return to “normal” isn’t an option – after more than three years of uncertain economic and market conditions, this is the new normal. Boards should adjust accordingly and develop the necessary strategies to help keep their companies competitive in the long-term.
The following are some of the top challenges likely to face companies, and their boards of directors, in 2012.
Continued turbulence
Some economists have warned that the global economy may return to a recession in 2012. On the other hand, despite negative indicators, several economists believe a double-dip recession will be avoided this year. The only thing certain about the global economy in 2012 is continued uncertainty – unless, things get worse.
When creating and reviewing strategic plans, boards must challenge the economic and business assumptions that provide the foundation of those plans to ensure they are both reasonable and take into account different scenarios, including the risks created by changes to market liquidity and financing. When assessing the potential impact of deteriorating economic conditions, boards should ensure that management’s analysis looks beyond the company’s own walls to assess, for example, the ability of suppliers to continue meeting their contractual arrangements, and customers maintaining their order levels and ability to pay on time.
Keeping risk and opportunity in balance
Risk management continues to top the agendas of many boards. The question, however, is whether risk is now over-dominating boardroom discussions? Boards that once focused too exclusively on the upside of an opportunity may have since adopted a highly intensive risk focus that causes them to see only the downside risks. If so, these organisations may be suffering risk paralysis – being afraid to act on an opportunity that would create value for the organisation today.
Organisations need to foster intelligent decision-making, determining how much risk they are willing to take on, and how those risks will be managed and mitigated so as to both preserve and create value.
How agile is your strategy?
A business environment in which capital markets, exchange rates, consumer confidence levels and other factors fluctuate from day to day with extraordinary volatility creates unprecedented challenges for organisations in executing their longer-term strategies. Strategic plans set out objectives to be realised over the longer-term must remain focused if they are to be achieved. At the same time, however, a strategic plan must be flexible so it can be adapted and realigned to continuing changes in market conditions.
Talent, strategy and risk continuum
Organisations recognise that talent management is closely linked to strategy, since top talent is needed to drive top performance. What is less recognised is the link between talent management and risk. Inappropriate actions on the part of an individual, or group of individuals, resulted in the demise of, or serious financial or other damage, to many companies. Understanding the strategic and risk implications associated with talent management, and properly integrating those issues, can create a competitive advantage for organisations.
Sustainability and CSR
Today, sustainability has become a key issue for all organisations as a result of increased pressure from customers, suppliers, employees, investors, local communities and regulators.
Sustainability is no longer just a risk-management and compliance issue. Leading organisations are increasingly looking to sustainability as a source of competitive advantage as well as a driver of innovation – in processes, products and services.
Boards need to ensure that their organisation views corporate sustainability as more than just good corporate citizenship – it must be an integral component of its overall business strategy.
Shifting to the new business paradigm
The global business environment has changed dramatically in recent years and is likely to continue to do so. Boards of directors have an important role to play in helping their organisations shift to and succeed in the new global economic and business paradigm.
This article discusses some important issues for boards in 2012, but there are many others including those that are unique to an industry, operating jurisdiction or individual organisation. Since many of these issues will evolve rapidly, and because new ones are continually emerging, directors need to educate themselves to keep pace with the challenges facing their organisations and to commit to helping their companies address those challenges.
This article is an excerpt from “Directors’ Alert: 12 issues for 2012”, which offers insights from Deloitte governance specialists around the globe. For the full article
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