As the Christmas break approaches and 2022 draws to a close, we reflect on key Boardroom themes that have surfaced over the course of the year. Fidelio conducts Board Evaluations in the UK and internationally and we continue to see an increasing awareness of the importance of the Board. There is also recognition that an underperforming Board can represent a real risk to the business and to the reputation of individual Board Members. In the Summer Fidelio explored in detail how Chairs are engaging with Board Evaluation to build a much fuller understanding of Value and Performance in the Boardroom and the business. This sharper focus is at least partly driven by some of the macro-trends that have shaped – and shaken – business over the course of the last year:
1. Geopolitical Fragility Geopolitical tensions have been simmering over recent years but in 2022 came to a head with a horrifying war in Europe and a broader deterioration in relations between the world’s major powers. Many businesses have been caught up in the maelstrom of sanctions and supply chain risk. The ability to think through geopolitical risk is for international Boards a core competence, although frequently not much external attention is drawn to this aspect of Board discussions. But 2022 brought geopolitics into all Boardrooms and has resulted in a much greater focus on the effectiveness of risk oversight, in terms of horizon scanning as well as resilience and agility of response within the organisation. 2. The Planet While geopolitics has thrown energy security into sharp relief, Boardroom focus on climate change has intensified. Two COPs in succession have been high profile and both investors and regulators have stepped up their expectations for the business response. We have seen a keen demand to build up climate change competence in the Boardroom. This is partly driven by very real concerns about what constitutes green washing. Boards need to be able to challenge the executive and ensure that customers are not advertently or inadvertently being misled. Transition plans are expected and will be scrutinised. A singular focus on regulatory risk can too easily give rise to green hushing – a new term in 2022. But reassuringly in our work with Boards, Fidelio has also seen excitement and enthusiasm for the business opportunities that decarbonsiation may well represent. 3. The Cost-of-Living Crisis Inflation has been a major theme of 2022 and from early in the year has featured prominently in Boardroom discussions. The cost of energy in particular had a material impact on a vast range of businesses and sectors. By the second half of the year inflation was also having a clear and detrimental societal impact. Increasingly business was expected to take care of its own profitability, as well as the consequences for employees, consumers and society. Fidelio certainly saw Boards thinking through this accountability and supporting management to do the right thing, despite a tough economic backdrop. This will likely continue to be a key theme into 2023 not least for Remuneration Committee Chairs as scrutiny of executive and CEO pay intensifies.
The challenges and complexities of 2022 did not diminish the value of good governance. Quite the opposite. It raised expectations. An effective Board will help to interpret and navigate a difficult external environment. It will play an important role in thinking through performance and accountability, and the balance between resilience and agility. This requires a strong and constructive dynamic and a skill matrix that blends valuable experience and diversity of perspective. Board Evaluation is a means to supporting that end.
To read Fidelio ‘s Overture 'Board Evaluation: Value and Performance' in full, click here.