As the world turns to the next decade, what rising conversations will matter to the board community? Diana Wu David considers a few wide-ranging trends and key questions to consider around the board table.
Evolution of governance
‘The system of making capitalism work well for most people is broken.’ Ray Dalio
The last 100 years has shown cyclical swings between shareholder value and stakeholder value. Early organisations petitioned the state for a charter. There followed the rise of incorporation tempered by antitrust. The agency theory and total shareholder return now being tempered by a sense that corporate profits are no longer a singular measure.
Global recognition of the power and responsibility that corporations hold is expanding. The Business Roundtable advocates ‘redefining the purpose of the corporation’ and the recent World Economic Forum meeting in Davos announced the dawn of a ‘better kind of capitalism’. Boards are evaluating what that looks like, how it touches on strategy and what duties companies and boards have to ensure positive stakeholder impact. Some see this as company led reform to stave off regulation, but whether you are cynical or optimistic, this seems to be a more than a cyclical trend to ignore.
Boards need to re-evaluate what measures, including environmental, social and governance, they use to gauge success more broadly?
Stewardship of resources and the planet
‘Companies need to consider all their stakeholders – and not only shareholders.’ Tim Mohin, GRI
Part of the shift towards stakeholders and shared value is due to the perception that the past decade(s) have been built on unsustainable business practices. Around the world, there is a question about the world we have built and the values that brought us here. Scandals and executive pay are the most notable instances of this overall decline in trust.
As Bank of America Chairman and CEO Brian Moynihan notes, ‘Society is best served by corporations that have aligned their goals to the long-term goals of society.’ Lofty aspirations aside, there is risk in ignoring the external costs to resources and planet which can lead to tightening of supply or cutting off of supply chains. Will consumer sentiment, regulation, depletion or cost mean that companies must change ways or simply look to new planets or previous frozen seas for new opportunities?
Boards should be asking what externalities previously off-balance sheet have allowed the business to prosper?
A tipping towards Asia and nationalism worldwide
When my previous boss, Dr Henry Kissinger, was asked about the Obama administration’s ‘pivot to Asia’, his quip was, ‘I didn’t know we’d left’. The dance between West and East continues.
As it rises in power, China is looking to shape the geopolitical, cultural and fundamental values that shape
the global status quo, in the same way the US did in the 20th Century. Companies like Haier are pioneering new, decentralised management systems that express an ethos of entrepreneurship, more Silicon Valley than the big American tech titans.
US-China trade tensions are adding uncertainty in global supply chains and encouraging a technology decoupling
with broad ramifications. China’s growth is slowing (China’s economy in 2019 grew at its lowest rate since 1990), with
the coronavirus presenting additional challenges. There is a ‘creative tension’: with China, with governments grappling with its increased global power and an increase in issues putting pressure on domestic social reform.
But it’s not just China. Asian economies will be larger than the rest of the world combined by 2030. While China is
the juggernaut, South and Southeast Asian economies are booming, fuelled in part by a demographic dividend of young people entering the workforce.
Finally, Brexit, Trump and nationalism in countries around the world reveals a trend towards ‘build a wall’ politics, ring-fencing anything to make us feel safe from change.
Boards need to consider whether or not they have the expertise to take advantage of Asia’s rise and how to de-risk or take advantage of potential changes in regulation due to the rise in nationalism.
Demographics affecting the consumer and talent landscape
The world is aging. China’s National Bureau of Statistics just announced that the country’s birth rate fell to a record low, dropping to 1.05%, mirroring trends across the developing world. Meanwhile those 55-year-old and older will go from the smallest portion of the workforce to largest by mid-decade, spurring the OECD, World Economic Forum and American Association of Retired People to launch Living, Learning and Earning Longer research to help companies cope. Mercer is pioneering new phases of work for retired but still active executives.
Reskilling, upskilling and outskilling of workers to meet new demands is required and governments and companies are scrambling to figure out who does what. A newfound recognition of multiple generations in the workforce, increasingly catered to by personalised benefits gleaned from data-crunching and AI is transforming the way companies combine technology and labour for competitive advantage.
Employees have risen up the ranks with the likes of yogurt maker Chobani and audio and entertainment company Richer Sounds giving the company to employees and the Financial Times calling for employee welfare to be paramount. Vint Cerf and others are calling for a ‘people-centred economy’ that puts a living wage and meaningful work at the centre of commerce. Does this spell the end of hierarchy and the rise of agile networks or will it go the way of pool tables and free lunch?
Boards need to have a workforce plan to fulfil a future proof agenda.
Tech sense as a Minimum Viable Qualification for directors
‘Whoever leads in AI in 2030 will rule the world until 2100.’ – Brooking Institute
There will be no more room for directors who cannot quickly grasp the effects of tech disruption on business models and industry landscapes. Technology has come out of the back office and become a strategic imperative, destined to be woven through every cell in many companies from agriculture to surveillance. T-shaped understanding with depth in certain aspects of technology or innovation and a broad knowledge of the drivers affecting change will be imperative. This may see a shift to less senior directors, but with more recent experience in up and coming disruptions coming down the pike.
Understanding issues of data, machine learning, privacy and security are vital to all companies no matter their size or industry.
In the Age of Acceleration, that I wrote about in my book, Future Proof, technological disruption, global shadowboxing and an always-on workplace have left us with a sense that we have run out of road and need very much to find new, sustainable ways to prosper.
Boards need to ensure they are prepared for what lies ahead.