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As society continues to evolve into a post-pandemic world and the economy adjusts to the new normal, organizations have the opportunity to set the tone in how they adapt their operations and have a positive impact on society. The current situation allows boards of directors a broader role in leading their organizations along this journey.
The EY Board of Directors’ Global Risk Survey reveals that only 43% of board members in Asia-Pacific consider their organization to be “more than somewhat effective” in managing emerging risks, compared to 58 % of traditional risks. According to the survey, there are three pressing issues that boards must prioritize, reflecting the unique combination of challenges and opportunities in these uncertain times. These involve building trust in the face of digital disruption; manage capital allocation through business transformation scenarios; and address business risk resulting from climate change.
BALANCING DIGITAL TRANSFORMATION, RISK AND TRUST
Organizations have been forced to rely almost entirely on digital infrastructure to communicate, function, and be competitive. Going forward, once the crisis is over, companies will need to consider becoming fully and truly digital. As digital adoption deepens, more companies are investigating new ways to incorporate emerging technologies into their ecosystem while navigating increasing vulnerability to cyber attacks.
Boards of directors should regularly discuss data and digital issues such as data privacy, misinformation and ethical risk, and cybersecurity at board meetings. You need to ensure that they have the expertise to monitor these risks through an independent subcommittee or subject matter experts. The stakes are especially high because if systems fail, customers, regulators and shareholders will hold executives and boards accountable for the resulting reputational and financial costs.
Additionally, the boards are expected to help their executives build digital trust in emerging technologies such as smart automation, blockchain, and artificial intelligence. Boards must understand what these emerging technologies mean to their organizations, what risks they carry, and the role of their audit committees in managing those risks.
PLANNING OF MORE VARIETY BUSINESS TRANSFORMATION SCENARIOS
When the eye Global Capital Confidence Barometer (CCB) was released in March, 55% of organizations in Asia-Pacific expected a U-shaped recovery that would extend well into 2021. This resulted in organizations being more cautious when renegotiating contracts, reviewing financial plans and monitor how direct cost increases affect your margins. . However, many also planned to take advantage of rising distressed assets coming to market and lower valuations to build resilience or support their digital transformation agenda. furthermore, the CCB found that 52% of Asia-Pacific respondents expressed an intention to pursue mergers and acquisitions (M&A) in the next 12 months.
These reactions establish the need within organizations to balance the need to be cautious not to seize opportunities for sustainable growth through targeted acquisitions. Boards can reinforce this by influencing management to protect organizational assets while taking calculated risks that offer the best opportunities for competitive advantage.
Divestments are another attractive option for financing much-needed technology investments, as featured in a recent EY divestment study, in which 56% of Asia-Pacific companies responded that they are more likely to divest for this purpose in compared to 31% who articulated the same intention before the pandemic.
Boards should discuss strategy on an ongoing basis, as well as use scenario planning for a much wider range of possibilities. Using this tool ensures that the models created remain relevant and up-to-date, putting the organization in a better position to predict and rapidly adapt to a post-crisis future.
Boards must also plan different economic scenarios and outcomes within a variety of time frames. It is also vital to determine if they have a framework for evaluating their performance and progress. They need to question how often they monitor and question the way their organizations allocate resources and capital, making sure to protect their assets, optimize operations, and consider long-term growth strategies.
DRIVE TO FIGHT CLIMATE CHANGE
In the 2019 EY CEO Imperative survey, 40% of Asia Pacific CEOs named climate change as one of the top global challenges, while global investors ranked climate change as the priority issue joint together with national or corporate security. However, what is more significant than the rating itself is the expectation of investors that CEOs will respond to this appropriately. According to the 2020 EY Global Institutional Investor survey, investors are more rigorously evaluating environmental, social and governance (ESG) disclosures while taking into account disclosures made as part of the Related Financial Disclosures Working Group framework. with the weather (TCFD).
The COVID-19 crisis spurred this by exposing unsustainable business practices. The pandemic revealed that climate action is vital to becoming a responsible and resilient organization that prioritizes long-term impact over short-term gains. Many of our ASEAN neighbors and Japan and South Korea have announced plans to stimulate low-carbon industries in their respective nations through their economic recovery.
Board members are in a unique position to advocate for their organizations to reduce their carbon footprint. This can be achieved by encouraging management to analyze the risks and opportunities resulting from climate change and the transition to a decarbonized future. The boards can help management identify effective non-financial KPIs that quantify progress in setting and acting on climate goals. It will be imperative to understand the role the organization plays in the transition to ecological recovery, as well as to communicate them more comprehensively through TCFD reports.
Additionally, boards must assess whether they themselves have the skills, structures, and processes to guide management teams in addressing climate change. The sooner management understands climate risks and opportunities, the better the organization can take practical steps to transform the business into a low-carbon economy and create a competitive advantage.
MAPPING A COURSE FOR THE FUTURE
The decisions leaders make are crucial as they set the course for the future. These decisions give organizations the ability to adapt to that envisioned future through a well-crafted plan. Focusing on these priorities enables business leaders to navigate uncertainty and seize business transformation opportunities that will put their organizations on a path of greater resilience and greater competitive advantage. At this time of great uncertainty, it is time for boards to take control.
This article is for general information only and is not a substitute for professional advice when the facts and circumstances warrant. The opinions reflected in this article are the opinions of the author and do not necessarily reflect the opinions of SGV, the EY global organization or its member firms.
Maria Vivian C. Ruiz is Vice President and Associate Managing Partner of SGV & Co.
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