The 2022 Board’s agenda: new beginnings and challenges

The last two pandemic years are likely to be remembered as one of the most significant periods in recent memory. While the difficulties of any given year frequently affect boardroom agendas the following year, the effect of 2020-2021 on boardroom agendas in 2022 will most likely be enormous. Simultaneously, boards will have to deal with several recurring board oversight issues, including strategy, financial reporting, people, and culture.?

This item on the board's agenda looks at some of the numerous old and new problems that boards will face in the coming year.

The purpose of the company

The Business Roundtable's "Statement on the Purpose of a Corporation," in which the CEOs of 181 businesses agreed that corporations should work for the benefit of all stakeholders, not just shareholders, may not have been on many boardroom agendas until 2019. The purpose-driven strategy represents an evolution of corporate strategy rather than implying that purpose and plan are separate.

As a result, boards are increasingly considering incorporating purpose into core business strategy and adopting stakeholder capitalism, which involves considering all of a company's constituencies, or stakeholders (i.e., employees, customers, suppliers, and regulators in addition to shareholders) when making decisions, even when no single constituency has to control over a decision or when stockholder concerns are widespread. Indeed, the prominence of problems like worker well-being, diversity, equality, and inclusion, and “enhanced” environmental, social, and corporate governance (ESG) on the boardroom agenda seems to indicate that “purpose-driven strategy” is here to stay.

As the year 2022 approaches, ESG is making inroads into new areas of board consideration, most notably in the development and application of ESG-based compensation metrics, which are intended to incentivize management to improve performance in areas ranging from diversity, equity, and inclusion to greenhouse gas and other emissions reductions. The board of directors and the compensation committee must oversee the use of these metrics to determine whether they are appropriate for both business and compensation purposes and whether investors and others can adequately view their achievement as “stretch” goals rather than low bars.

Assurance of those metrics, like the underlying usage of metrics, is still in its infancy. Still, it is becoming more essential as a tool to improve quality and reliability in the measurement and reporting of key metrics used to incentivize business conduct. As a result, boards and committees are expected to keep a close eye on the following year.

Employee well-being and workforce strategy

Workforce strategies will continue to be a hot topic in boardrooms in 2022 due to various reasons ranging from the pandemic and its danger to workplace health and safety to the increasing investor and regulatory emphasis on human capital management.

After the epidemic, how the employees may return to offices and other facilities will be a crucial area of board supervision. Some companies have announced that all or significant segments of their workforce will work remotely indefinitely; others have begun to bring some employees back into company facilities, in some cases on a rotating basis, to maintain social distance; and still, others appear to be taking a hybrid approach or deferring decisions for the time being. Two anticipated issues on the board's agenda in the aftermath of the epidemic are:

• As virtual work seems to be here to stay to some degree, how can we assist our workers in remaining connected?
• How does the workforce return to work safely, and in what kind of office or facility configuration? By focusing on these and other related issues, boards may show that they care about the health and well-being of their employees.

Since the onset of the pandemic, boards are likely to explore a longer-term emphasis on whether their companies are supporting or facilitating worker health, both physical and mental. This includes board monitoring of business metrics that demonstrate value creation and risk reduction, such as the return on investment from workplace mental health initiatives and the economic effect of lower attrition rates.

Diversity, equality, and inclusion are all essential factors to consider

Concerns over racial justice were another significant disruptor in 2020-2021, especially the business sector, to recognize and confront systematic racism becoming more common. And it seems that companies are taking notice.

In 2021, one overriding rationale for boards' emphasis on diversity, equality, and inclusion (DEI) will be risk monitoring. Stakeholders, such as investors, employees, and customers, continue to demand that the business and its workforce pay attention to DEI to manage reputational and cultural risk. A second reason boards may handle DEI this year is to create value. Workers want to know whether the business they work for is doing well on the topics that matter to them, which may keep them engaged for a long time.

Culture

Corporate culture is a recurring subject on the boardroom agenda; it is a critical issue that affects every element of a company. Indeed, it covers a wide range of topics, including workforce strategy, well-being, diversity, equality, and inclusion. A firm's culture has a significant effect on business disruption and continuity; a culture that does not promote agility, adaptation, or resilience may make it far more difficult for a company to recover from disruption than a culture that does.

As difficult as it is for boards to assist management in developing, maintaining, and enhancing a robust and positive culture in "normal" times, an event like the pandemic makes the task much more difficult. When all or a substantial part of a company's staff works remotely, how can it retain its culture?

A crucial component of job happiness and engagement is the challenge of personal human connection to support the workplace culture. Can a workforce stay cohesive if certain workers are required to travel to a business site, risking exposure to COVID-19? In contrast, others are allowed to work remotely, at least until a large part of the workforce has been vaccinated and immunized? Even after the epidemic has passed, it will be more essential than ever for the board to understand the workforce's mood and how management is leading; boards will need to stay attentive to the significance of and difficulties connected with, sustaining a strong culture.

Risks: Crisis management, disruption, and business continuity

Risk management and associated board supervision have traditionally included crisis management, disruption, and company continuity. The definitions of these words and the magnitude of the problems they offer in 2021 need a considerably more comprehensive set of concerns. For example, the issues covered by the phrase "crisis management" have often been short-term and of restricted scale, such as an executive's unexpected death or disability or damage to a manufacturing plant.

Because of the pandemic's intensity and length, many companies have experienced significant losses and, in some instances, have had to close their doors. Traditional areas of risk monitoring have also been worsened by the pandemic, such as increasing cases of hacking and other cyber risks.

Looking back by performing postmortems to evaluate how the company handled the pandemic, looking ahead to identify where current plans need to be improved, revising playbooks to manage a broader range of crises, and participating in wargaming exercises are all examples of this approach. Boards might consider reviewing how they fared throughout the situation as part of this process: was the board involved in the pandemic response and the difficulties that came with it? Did the board of directors give management the necessary support? Is there a demand for more skill sets on the board?

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