Is the introduction of an audited resilience statement, to assess ability to cope with existential threats, enough to protect companies?

Last year only just scratched the surface on a number of issues which are set to dominate boardroom agendas this year. Here are my predictions for the top five challenges boards will need to address together over the coming year.

1. Uncertain decision-making

The days of having all the facts and information before you to make an informed decision are over. The rate at which companies are having to adjust to change, be this Brexit, disruptive technologies or digital transformation, will demand greater agility of institutions and their leaders over the coming year than ever before.

So, while boards typically sit between wanting to do the right thing and not knowing what the right thing is, the days of having time to wait for all the facts to unfold before having to make a decision are over.

Going forward, boards will have to work hard to embrace the state of not knowing. This will require constantly considering pros and cons and translating this into a framework for making decisions. A fluid Decision-Action-Review cycle that allows for decisions to be made without having all the information, then quickly reviewed in the light of new evidences to allow for constant reflection in light of rapidly changing developments.

2. Digital transformation

Over the past few years, responsibility for driving digital transformation has shifted from the IT function to CEOs and business leaders. 62% of employers now have a business digitalisation strategy prioritised in their corporate strategy , primarily as a means of creating competitive advantage and growth. But the issue lacks leadership.

Boards need to define what digitalisation means to them. Is it purely about putting systems and processes into the cloud or future-proofing the business to use artificial intelligence decision-making and new ways of agile working to transform the way customers and employees interact with the business?

The board has a huge responsibility to oversee the overall success of how the organisation adapts to the fourth digital revolution. While there weren’t many governance structures in place for the first three revolutions, steam, electricity and computing this next revolution will dramatically change the way we live work and interact with one another, so needs careful and considered leadership. All of which means ensuring individual directors are supported to acquire the knowledge needed to have intelligent and regular conversations about how well the company is adapting.

3. People agendas

Human Capital Management is evolving from viewing employees as ‘assets’ to ‘consumers of work’. Tightening labour markets, skills shortages and the need for more agile working have taken a toll on the workforce. There is now an epidemic of mental health issues across the workforce, with staff turnover, sickness and lost productivity resulting from poor mental health costing UK businesses £42bn last year. That’s around £1,300 for every single employee.

High pay will also be a key issue in 2020 as this is the first year that publicly listed firms with more than 250 UK employees must disclose the ratio between CEO pay and the pay of their average worker, bringing the issue of pay inequality to the fore.

All of which means the board can no longer afford to ignore ‘people issues’ which were once seen as the preserve of HR and not a c-suit matter. In response many boards are planning to appoint HR directors to the board or increase the scope of their remuneration committee to include the wider people and change agenda. While others, such as Capital, the FTSE 250 outsourcing giant, have started to appoint employees as non-executive directors, in keeping with a new focus on ‘representing the employee’s perspective at board level.’

4. Environmental, Social and Governance (ESG) risks

Although the recent UN climate talks ended with limited progress on emissions targets , four of the most impactful global risks now relate to the climate, with failure to act on climate change and extreme weather events not only considered to be the two most likely risks, but also two of the three most impactful, according to the World Economic Forum Global Risk Report.

Boards will need to sharpen their ability to respond and create effective strategies to cope with environmental and other ESG risks. They’ll need to contemplate what an environmental or public relations disaster would mean for their ability to operate, what opportunities there are to get ahead of the curve and what a demonstration of a commitment to the issues becoming of increasing importance to investors and the public could do for the business, instead of waiting for a crisis to force them into taking action.

5. Diverse strategic thinking

Another big focus for 2020 will be the importance of more diverse strategic thinking for driving productivity, increasing effectiveness and delivering outcomes.

Given the extent to which executive directors have struggled to address these challenges in the past, boards will have to get better at diversifying their strategic thinking by drawing on the experience of non-executive directors (NEDs), to find new and more effective ways of working and preparing for future challenges.

By allowing NEDs to bring the full wealth of experience and skills they have to offer, boards can increase diversity of opinion to offer the different perspectives and insights needed to create better decisions. Critical to achieving this is empowering NEDs to play a more active role and better including them in strategy formulation, instead of allowing the executive to dominate decision-making.