A little crystal-ball gazing can help leaders prepare for coming challenges and opportunities.
A series of unconventional developments is likely to impact corporate governance in 2023. These extend beyond the usual subjects, such as shareholder activism, cybersecurity, cryptocurrency, ESG and politics. Rather, they reflect a tier of unique ethical, economic, technological, regulatory and public health concerns that are poised to affect corporate leadership in unanticipated ways.
1. The Board/Management Dynamic. The relationship between the board and executive leadership will encounter new pressures as directors seek to become more engaged in corporate affairs, given operational and financial challenges and fiduciary expectations. Directors and executives will be encouraged to jointly confirm their respective roles, responsibilities and lines of authority in order to preserve the proper balance between governance and management, and to support their critical collaborative partnership.
2. Tone at the Top Returns. Corporate leadership will be compelled to demonstrate a clear “tone at the top” in response to recent indications that, given changing attitudes in the workforce, “cheating” and other forms of connivance and deceit may be becoming more accepted. Both board members and executives will be expected to send, by their own words and conduct, a loud and consistent message to employees at all levels that ethics and honesty are of primary importance to the company.
3. A Volatile Economy. The board will be increasingly challenged to closely monitor economic conditions, given the uncertainty associated with high inflation, continued low job participation levels and the likelihood of a recession. This financial review will be further complicated by concerns that the impact of current geopolitical tension, the ongoing global COVID pandemic, continued supply chain concerns and rising interest rates may not be transitory in nature or quickly reversible.
4. Informed Risk Taking. The breathtaking success of Artemis and other recent space missions will encourage corporate leaders to pursue innovative and bold business initiatives, not only in technology but also in other areas. NASA’s highly successful missions offer a leadership lesson on the value of confronting risk and uncertainty through thoughtfully conceived, and diligently developed, projects. Moreover, they incentivize leaders who seek to shape the corporate destiny, rather than waiting to have it foisted upon them.
5. Oversight of AI. As the regulatory framework for artificial intelligence beings to take form (such as the AI Bill of Rights), and the benefits and risks for AI become more clear, the board of directors must consider the related oversight considerations. These would include the processes by which directors will address AI application and implementation issues in their own companies, and develop internal structures that will provide for effective board education, monitoring, risk prevention and regulatory compliance.
6. Addressing Misinformation. Governance will be motivated to engage in internal discussions on “misinformation” as a potential enterprise risk to the organization, including its impact on the company and its workforce culture, and the fundamental questions of whether it can and should be monitored by the company to any degree. This will be a strategic-level assignment that would address such critical topics as the definition of misinformation, its dissemination and the privacy and free speech implications for employees arising from related company policies.
7. Growth Confronts Antitrust. The extraordinary level of recent federal antitrust enforcement will impact how the board of directors addresses strategic planning, especially non-organic growth opportunities. Mergers, acquisitions and other collaborations that may have gone unquestioned in prior administrations are now facing increased scrutiny and challenged more frequently. Directors will face difficult issues concerning whether to pursue transactions that present antitrust risk or develop alternative growth options.
8. Focus on Individual Accountability. The board/management relationship will be stressed by increased government scrutiny of corporate criminal conduct, and the possible accountability of individual executives. Government recommended financial and other compliance incentives and penalties, as well as requirements for extending “cooperation credit” to corporations, will create tension within the management team which the board of directors will need to confront, along with its own obligation to support compliance.
9. The Privilege of Board Service. Heightened expectations of director conduct and continuing calls for diversity of board membership will increase pressure for accelerated refreshment of board composition. Options beyond term limits and mandatory retirement (such as peer review and offboarding) may need to be considered in planning for meaningful board turnover. From the beginning of board service, directors will be made aware of the potential that they may be asked to leave before the scheduled end of their term.
Public Health Challenges. Corporate governance will be forced to confront the reality that both the nation, and by extension the corporate workforce, remain vulnerable to COVID and other pathogens. The board will team with management to implement within the workplace the public health lessons from the pandemic, and to establish a “tone at the top” with respect to workforce culture around illness. It may also adopt a more forceful corporate voice concerning national preparedness for future public health emergencies.
