Finding Stability and Opportunity Amid Economic Uncertainty

Download

With the economic outlook constantly shifting as if it were a moving target, directors need to embrace change and set a tone of focus and confidence when looking to the future. It all starts with asking the right questions.

Growth across the global economy is slowing. With the growth rate projected to shrink in 2022 and 2023 by half of what it was in 2021, business conditions have likewise declined. As the months go by, projections continue to worsen. Well-known factors could further exacerbate the picture.

The impact of the slowdown in economic activity varies across countries and regions, depending on trading relationships, financial ties, exposure to commodity price increases, the strength of inflation, exposure to the war, the state of the pandemic and the strength of the recovery. Accordingly, fiscal and monetary policy responses differ across economies. The tightrope balancing act by policymakers is further challenged by efforts to retain focus on longer-term goals.

The bottom line is that global markets may be facing a bumpy ride and potential economic downturn over the next 18 to 24 months. Amid the uncertainty, one thing is clear: A mindset bent on emphasising short-termism with an excessive focus on near-term results and smaller-scale, low-cost, quick-impact projects can result in lost opportunities due to a lack of focus on values, strategy, fundamentals and long-term value creation. Now is the time for leadership and clarity of purpose, for looking beyond the horizon. It is a time for leaders to focus on opportunities they can extract from existing business realities.

The seven questions below provide a basis for grounded discussions in the boardroom. Addressing them with a commitment to values and preserving reputation and brand image helps organisations emerge stronger in the recovery.

Download

Topics

Vorstandsangelegenheiten Interne Revision und Corporate Governance Risk Management and Regulatory Compliance

How do we visualise our business from a competitive-positioning standpoint looking out two to three years given current and expected market realities?

This conversation is about understanding the distinctive advantages of the company’s brand that should be exploited. It entails stacking up the organization’s strengths and market opportunities against those of its competitors. Anticipating actions that competitors are most likely to take can inform strategies for positioning the brand as a leader during the market recovery.

Are we sufficiently focused on the customer experience?

Companies should assess whether fundamental adjustments are needed to product mix, sourcing strategies and pricing as customer behaviors shift in response to rising prices and product shortages. Obstacles and distractions as reflected in data around the customer experience should be eliminated. Customer-facing employees should be empowered to enhance responsiveness.

Have we sharpened our focus on the recruitment and retention of talent?

Regardless of senior management’s bias toward where work should be located, the organization needs to pay close attention to remote and hybrid work realities in the marketplace. This is a time to focus on retaining “A player” talent. It is a time to upgrade executive capabilities and boost executive bench strength.

Have we reimagined our supply chain to minimise disruptions in the future from another pandemic or regional conflict?

Disruption and congestion risk considerations should be equated with the traditional quality, cost and time factors that have shaped supply chains in the past. Public health responses to pandemic spikes in different countries, the Ukrainian war and the focus on achieving net-zero carbon targets have altered the fundamentals underlying globalisation. Emphasis on resiliency is giving rise to such supply options as friend-shoring, near-shoring and reshoring.

What digital acceleration and innovation opportunities should we pursue at this time, with an emphasis on product development, to strengthen customer engagement, flexibility and relationships?

The board chair should allocate sufficient agenda time to cover innovation strategy and culture while encouraging open discussion on direction and progress with management. Such discussions should be supported with appropriate metrics. Digital technologies such as artificial intelligence factor strongly into innovation initiatives. Open innovation options should be considered to unlock fresh opportunities. Attention should be given to enabling a hybrid workforce model to facilitate resiliency. As these initiatives are pursued, companies should pay heed to cybersecurity, the increased risk to data and the implied brand promise around trust. The importance of the chief technology officer is elevated in times such as these when stakes are high in making the right bets with finite resources.

Are we establishing the proper tone at the top on sustainability matters and achieving alignment through appropriate performance expectations and reward systems linked to the sustainability strategy?

Environmental, social and governance (ESG) matters offer the highest level of strategic thinking in the boardroom. They cannot be put aside as the belt tightens. In the U.S., 576 ESG-related shareholder proposals were submitted through April 12, 2022, a 15% increase from the prior year. Directors should resist getting frustrated with the details and nuances. The big picture is what matters. Sustainability opportunities should be integrated with strategic discussions, and close attention should be given to strategic communications around these topics, both internally and externally. One research study reports that less than 10% of companies have fully integrated their business, technology and sustainability strategies.

If a severe economic contraction occurs, do we have an up-to-date, vetted, proactive contingency plan to enhance our agility when circumstances warrant its implementation?

Such plans should sequence, prioritise and group actionable steps by function and operating unit to establish clear ownership, authorities and accountabilities. They should be supported by key metrics to be managed against specified targets. The plan should provide for actions in different scenarios. As it focuses on margin and balance sheet management, the plan should allow for future investments by sustaining key on-strategy investments during the downturn to retain critical talent, preserve market image and branding, and foster a strong recovery when the economy bounces back. Directors should review and approve the plan.

The above thinking will help directors and management focus on the fundamentals during these interesting, uncertain times. The resulting action plans should be monitored by the board and refreshed as market conditions change. Reconfiguring the board’s skills and experience in light of the major changes taking place in the economy and around the world is another consideration.

For more about how directors can embrace change amid economic uncertainty and set a tone of focus and confidence when looking to the future, read the article here.

(Board Perspectives — Issue 153)

Search in Protiviti.com