10 Topics Board Agendas Should Address in 2024

By Jim DeLoach, Former Andersen Partner and currently a Managing Director at Protiviti. He is the author of several books and a frequent NACD contributor.

Copyright 2023 National Association of Corporate Directors (NACD). This article originally appeared on NACD’s 2024 Governance Outlook and can be found here. Reprinted with permission. No further reproduction is permitted without permission from NACD.

I often refer to the 2020’s as a decade of disruption. The pandemic, while a profound event, was only the beginning. Government shutdowns disrupted workplace environments, forced many out of work, and affected sources of supply as demand collapsed for many products. When most government restrictions lifted, the surge in demand exceeded supply, congesting supply chains that had scaled down during the imposed shutdowns.

Total production within many industries lagged as businesses couldn’t source inputs and find workers, resulting in higher costs. While these issues have been unwinding for some time, they fueled inflationary pressures. Rising labor costs, outsized government stimulus, increasing shelter and food prices, Russia’s war in Ukraine, and the West’s de-risking its reliance on China are adding further pressure. If the war in the Middle East were to spread uncontrollably, oil prices would likely soar and affect many businesses.

With this backdrop, here are 10 issues that should be on the board’s agenda in 2024.

1. THE ECONOMY WILL BE FRONT AND CENTER

The drivers mentioned above create uncertainty over central bank policies, particularly those of the US Federal Reserve, which is unequivocally committed to reducing inflation to the Fed’s target rate. By the time it paused rate increases on November 1, the Fed had raised rates 11 times since March 2022, bringing its benchmark rate to the highest level in 22 years. It has stated that it intends to keep interest rates “higher for longer,” even in the face of declining long-term bond prices and rising yields. Is the Fed willing to drive a resilient economy into the recessionary ditch to cool labor markets and reduce wage growth and inflation? Clearly, it commands the stage to do so. For the board, the question is whether market developments and central bank policies will lead to some form of soft landing or to either a mild or severe recession—or worse, a sustained period of stagnant growth.

The impact of persistent inflationary pressures and higher interest rates presents several challenges. First, economic indicators should be on the board’s 2024 watch list. Second, directors should understand how the economy is affecting the company’s strategy and operations, e.g., its growth opportunities, cost of capital, pricing strategy, product profitability, margin management, and liquidity. Third, sustained higher mortgage rates will have pervasive effects on consumers. Finally, the board should recognize that many CEOs and their teams are used to cheap capital; they haven’t yet made strategic decisions to deploy capital in a high-interest-rate environment. The institutional memory is lacking.

2. A CHALLENGING GEOPOLITICAL LANDSCAPE CONTINUES TO EVOLVE

Today’s companies compete in a highly interdependent and competitive global marketplace in which countries and regions are taking a closer look at trade relationships through the lens of national security. For example, they are assessing and managing risks of continued interdependence, encouraging diversification of the sourcing of materials and components, and increasing their understanding of logistics and material sciences—all in the name of national security.

These geopolitical developments feed a difficult and challenging trading environment. The aforementioned wars in Ukraine and the Middle East, proliferation of disinformation, and convergence of China, Russia, Iran, and North Korea in opposition to Western democracies provide a combustible mix that is impacting leaders’ assessment of the global risk landscape. Where this picture of geopolitical strife is headed is anyone’s guess. But evolving global markets and potentially dangerous geopolitical scenarios bear watching by the board in 2024.

3. CYBERSECURITY, DATA PRIVACY, AND TALENT REMAIN ON THE RADAR

No list of potential 2024 boardroom topics is complete without including cybersecurity, data privacy, and talent. Evolving cyber threats and proliferating data privacy regimes all over the world will be prominent topics on boardroom agendas. As geopolitical tensions escalate, the risk of attacks by nation states increases. Ransomware events are a major concern. Artificial intelligence (AI) systems can augment both sides, enabling more sophisticated phishing campaigns as well as cyberattack monitoring systems. Cyber risk also deserves more due diligence attention in the M&A space. As for managing the creation, processing, storage, use, archiving, and destruction of sensitive data, regulatory requirements are impacting business models and contractual relationships.

As for talent, there simply isn’t enough walking the streets. Effectively led talent is needed to fuel future growth and prosperity. The task of managing human capital is transforming with a shift in focus:

  • Winning hearts and minds
  • Directing development activities to skills rather than roles or jobs
  • Emphasizing succession planning, leadership development, and upward mobility
  • Building technology competencies
  • Differentiating retention strategies for the different generations
  • Fostering a culture founded on core values and trust that serves as a magnet for talent
  • Improving onboarding effectiveness
  • Adapting to the emergence of union bargaining power

4. AI, UPSKILLING, AND RESKILLING REQUIRE ATTENTION AND INVESTMENT TO SUPPORT INNOVATION

With continued advances in AI, automation in all of its forms, ever-increasing connectivity, quantum computing, blockchain and digital currencies, and the metaverse, the market is poised to experience the largest wave of disruption since the turn of this century. At the present time, the buzz around generative AI is commanding the airwaves. The resulting disruption will likely manifest itself in many ways—e.g., new business models, rapid product innovation, changing customer value propositions, and disintermediation of distribution channels—and will sweep away obsolete strategies, traditional moats, legacy-laden architectures, conventional management playbooks, and old-school employee skills. The never-ending question for directors: “Is our business model being disrupted and, if so, how and when would we know?”

As they face 2024, directors should ensure there is sufficient expertise in the boardroom and C-suite to review and understand the organization’s core technology strategy and operations, determine how best to allocate capital to current and future technology investments, and, if appropriate, hedge innovation bets through joint ventures and partnerships. In addition, the state of current labor markets fails to fit the expected adoption of digital technologies; significant efforts will be necessary to upskill and reskill existing employees to realize fully the promised value from these transformative investments. The groundwork for planning and executing these skilling initiatives should begin now.

5. MODERNIZING INFRASTRUCTURE IS IMPERATIVE FOR INNOVATION

In an environment dominated by emerging technologies, disruption of business models, and universal acknowledgement of the importance of agility and resiliency to corporate success, innovation is a strategic imperative. However, directors are discovering the importance of understanding the extent to which the organization’s legacy infrastructure either enables or constrains the organization’s innovation efforts.

Accumulation of legacy systems and application solutions that were easier to implement over the near term but not the best overall solution long term has culminated in infrastructure that is difficult to maintain and support. While there are many aspects underpinning innovation initiatives, this “technical debt” can be a powerful restraint. All efforts to inculcate an innovative culture can be thwarted when technical debt has “accrued” to such a level that it slows organizational response to emerging market opportunities, stifling the organization’s ability to compete in a digital world.

A key takeaway for directors: understand the impact of technical debt on innovation goals and strategies and on management’s plan to modernize infrastructure to improve agility. The speed of “born digital” players can punish incumbents lacking the flexibility to adjust business models to changing customer behaviors. Be realistic about the cost, time, and training required to upgrade technology.

6. THIRD-PARTY RISKS INCREASE IN COMPLEXITY

Third-party risks continue to elevate in importance, with organizations becoming increasingly boundaryless as they redirect their reliance on outsourcing and strategic sourcing arrangements, ecosystem partners, IT vendor contracts, and other partnerships to achieve operational and go-to-market objectives. The geopolitical climate may also be a factor, with the West reducing reliance on China and dealing with newly restrictive laws and regulations around the globe.

Throughout 2024, the company’s third-party risk-management framework will be an important topic for directors. For example, who are the most significant third parties in the company’s ecosystem, and what assets and services within the organization are delivered through them? Have these third-party relationships been evaluated against appropriate risk criteria? What significant threats and vulnerabilities have emerged from this evaluation? Has a continuous monitoring program been established? Cyber criminals are finding success exploiting vulnerabilities due in large part to the complacency with which many businesses manage their third-party relationships.

7. THE BAR RISES ON SUSTAINABILITY, BUT DATA MANAGEMENT LAGS

Regulators in the European Union have set effective dates for expanded ESG-related disclosures and sustainability reporting beginning as early as 2025 for the year ended in 2024 for some companies. The marketplace continues to anticipate the issuance of climate disclosure rules in the United States. The standard-setting group known as COSO has issued recent voluntary guidance on internal control over sustainability reporting. In this business milieu, demand for sustainability data is growing, sparking a plethora of new risk questionnaires and surveys. Insurers’ underwriting processes, banking partners’ lending applications, and customers’ requests for proposals are creating greater demand for ESG-related documentation. As these disclosures are usually authored by different company stakeholders, they may lack consistency with the company’s mandated reporting to investors.

The data that feeds these disclosures must be trusted, accurate, complete, and well-defined. What directors may not know is that satisfying this need represents a massive challenge for most companies, given that ESG data is predominantly unstructured, stored in different formats, and pulled from numerous systems, applications, and sources throughout the company and its third parties. Progress needs to be made on this front in 2024.

8. BOARDROOM CULTURE TAKES A FRONT SEAT

An important NACD Blue Ribbon Commission Report asserts that, in these unprecedented times, culture lays the foundation for a high-functioning board. It offers recommendations for defining the optimal board culture, reinforcing the importance of the board having “firmly established behavioral norms and values that promote trust, candor, courage, inclusion, confidentiality, continuous learning, and accountability, and that support better decision-making,” and addressing major cultural fault lines. These recommendations merit close attention by boards in 2024 to assess the strengths and shortcomings of their culture and increase accountability in the boardroom.

9. DIVIDED GOVERNMENT CONTINUES IN THE UNITED STATES

While forecasts for the Senate and House in the 2024 elections vary, both could flip. In an unprecedented presidential race, polling of the two prominent candidates continue to be nip and tuck. One candidate faces legal peril and the likelihood of a steady stream of negative media running all the way to the November election. The other must still gain the electorate’s confidence that he is up to the task of running the country for another term. Is there someone else in the wings prepared to step into either’s place?

While the picture will clarify itself in time, we have no reason to believe that government inside the Beltway after the election cycle will be anything but divided. For boards, this generates increased negativity in the electorate, impacting trust in American institutions, social activism, and political unrest.

10. A NEW GLOBAL MINIMUM INCOME TAX MAY EMERGE

Two years ago, the Organization for Economic Co-operation and Development (OECD) orchestrated agreement among more than 130 countries (including all of the G20) to a two-pillar plan to effect significant changes to international tax rules. The agreement calls for large companies to pay more taxes in countries where they have customers and less in countries where they are domiciled. The rules are complex and have implementation issues but are intended to ensure a global minimum tax of 15 percent in each country in which multinationals operate. As the targeted timetable calls for 2024 implementation, directors of multinationals should be mindful of this possibility.

FINAL THOUGHT

The complexity of the global marketplace creates the potential for blind spots in the boardroom, i.e., matters of which directors are not aware that can damage the organization’s reputation, brand image, market standing, and competitive position. Market, competitive, and scenario analysis will enhance the company’s resiliency in facing unexpected events.