Economic Volatility and Global Conflict Impact the Board Agenda
Disclosure rules and risk concerns are also on directors’ minds.
KPMG’s Midyear Observations on the Board Agenda spotlights several items that are top of directors’ minds heading into Q3, including ongoing economic volatility, the Russia-Ukraine war and its ripple effects, and the SEC’s proposed climate disclosure rules.
John Rodi, a senior audit partner and leader of the KPMG Board Leadership Center, says boards must help the companies they serve prepare for a potentially significant period of economic downturn, including ever-higher levels of inflation and global financial volatility.
“Boards will need to continually calibrate their agendas to make sure companies are planning for the long term,” says Rodi.
At-Home Impacts of Foreign War
The Russia-Ukraine war has entered the realm of the long-term, with the fighting having entered its seventh month. According to Rodi, boards must consider several issues related to the conflict, including the well-being of employees in the region, energy and supply chain issues, heightened cybersecurity risks and general geopolitical instability.
“Companies are looking to reassess their global risk profile and disclosures regarding the risks posed by the war. They need to continue to make sure they are updating their filings to ensure that those disclosures are up to date.”
Preparing for Climate Disclosure Rules
The period for public comment on the SEC’s proposed climate disclosure rules closed in June, with over 4,000 comment letters received. It should be clear that new rules related to sustainability are on the way. Rodi says it’s important for boards to be proactive in establishing a process for assessing and overseeing management’s path to compliance. Also key is oversight and improvement of the company’s climate-related communication strategy.
“Set the tone early. That should be a priority,” says Rodi. “Don’t just approach the climate disclosure rules as a matter of compliance. Look to see how they impact the company’s strategy.”
Aligning Risk Oversight and Management
Risk oversight by the board and its various committees continues to be a key area of focus as the risk environment becomes more complex. According to Rodi, boards are increasingly delegating specific risk oversight responsibility to particular standing committees to provide a more intensive review of emerging issues. As examples, he cites the nom/gov committee playing a larger role in ESG, cybersecurity becoming a larger focus of the technology committee, and audit committees focusing squarely on the SEC’s climate disclosure rules.
“What we are seeing boards do is making an assessment of whether their delegation of risk oversight responsibilities is aligned and coordinated across the various committees, particularly when there’s overlap,” says Rodi.
The New Employer/Employee Dynamic
With companies fully engaged in a battle to recruit and retain top talent, boards are working to understand the changing dynamic between employees and employers, one that has been shaped by the COVID-19 pandemic and the racial reckoning within not only the American workforce but also American society in general over the last two years plus. As evidenced by the Great Resignation, employees increasingly want to work for companies that stand by their values and act accordingly on matters related to ESG.
“I think that’s part of the employee experience, along with the challenges and opportunities that are posed by employee activism. Boards are certainly monitoring that closely.”