With 2016 upon us, boards are likely to reflect on the organizational challenges they expect to face in the coming year, and to develop effective strategies to tackle these challenges. A recent EY publication anticipates that in developing these strategies, boards will focus their energies on addressing the following five critical challenges:
1. Board effectiveness, composition and refreshment
Boards are always looking for ways to self-improve. It is expected that 2016 will be no different in this respect. Boards will seek ways to attain the right mix of skills and experience and to enhance transparency and accountability. Particular attention will be paid to achieving board composition reflecting a greater diversity of knowledge and experience to mirror the increasing convergence of sectors and rising global interconnectivity. Demographic changes should give boards pause for thought on establishing an effective succession planning strategy. Among Fortune 500 companies with retirement-age policies, 19% of directorships are held by individuals within 5 years of reaching the board's designated retirement age.
2. Investor and stakeholder engagement
The recent rise in investor activism has caused boards to reflect on their shareholder communication strategies. Boards are increasingly monitoring required filings to ensure they serve as effective communication tools rather than merely "compliance" documents. Designated directors are expected to be fully prepared to engage directly with investors on appropriate governance matters.
3. Cybersecurity
At the moment, only 7% of organizations claim to have a robust incident response program that includes third parties and law enforcement and is integrated with their broader threat and vulnerability management function. This percentage is shockingly low given the serious risk that a cyber-breach poses. It will be incumbent on boards to ensure critical infrastructure is adequately protected and that there is a system in place to respond to a crisis. Boards will have to familiarize themselves with organizational vulnerabilities so that they can both guide management's cybersecurity strategy and prepare to face of new risks.
4. Oversight of Enterprise Risk Management (ERM)
In an effort to create long-term value, it is expected that boards will develop new policies and procedures to improve upon current ERM strategies and to enhance their organization's risk culture.
5. Oversight of talent risk management
In conversations with board directors, three out of four directors claimed that human capital strategy, meaning the need to retain or acquire talent, will be one of the top emerging risks boards face in 2016. To mitigate this risk, it is anticipated boards will work more closely with management to ensure an appropriate human capital strategy is in place. In order to best fulfill this role, boards will be required to apprise themselves of any and all human capital vulnerabilities particular to their organization.
The author would like to thank Michael Viner, articling student, for his assistance in preparing this legal update.
Norton Rose Fulbright Canada LLP
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