Emerging Issues for Boards in an Evolving Business Landscape

By Joan Conley, Senior Advisor, Corporate Governance and ESG Programs, Nasdaq and James Beasley, Head of Board Advisory, EMEA, Nasdaq with contributions from Vanessa Mesics, Head of Director Experience, Co-Head of the Nasdaq Center for Board Excellence, Nasdaq

Updated as of August 2024 to reflect emerging issues that boards are focused on in Q3 and Q4 2024.

Effective corporate governance is crucial for companies—and their boards—to successfully navigate ambiguous times. The Nasdaq Center for Board Excellence team’s work with thousands of board members and executives around the world has surfaced emerging corporate governance issues across eight key areas:

1. Board Effectiveness

Board education and training are key to improving effectiveness. Companies are assessing their board’s skill matrix to ensure there are board members with knowledge across various matters. Specifically, companies are looking to increase knowledge on risk management, artificial intelligence (AI), cybersecurity, and digital and data transformation strategy.

To help streamline effectiveness, companies are reviewing and clearly defining board and committee oversight responsibilities. For example, companies may assess whether their audit committee has the time and expertise to oversee all risks or consider establishing a risk committee or emerging technology oversight committee.

2. Economic & Geopolitical Instability

In the face of shifting global geopolitical and economic tides, it is imperative for boards to stay informed about potential impacts on their company’s strategy, goals, and operations. Board discussions should evaluate possible influences on various strategic areas, including capital allocation, investment in risk oversight, M&A and divestitures, supply chain resiliency, and market volatility.

Amidst the possibility of leadership changes worldwide, it is necessary to monitor likely disruptions and policy shifts that can sway business dynamics. Meanwhile, the various 2024 global elections add other layers of complexity. A comprehensive review of business strategy is imperative in preparing for potential outcomes to ensure adaptability and resilience. Plus, companies should consider whether their board is equipped with a board member who understands government affairs and policies.

3. AI & Emerging Technologies

It is critical that boards understand the right balance of process, procedure, and investment for AI. Moreover, boards should have discussions on the “path to value,” speaking to business objectives, goals, and ROI on productivity related to AI initiatives to alignment with the company’s overarching strategy. Some companies have established an AI internal management governance structure, including the emergence of new roles like Director of AI and Director of AI Security.

In response to technological transformation, companies are revisiting workforce recruitment and training strategies to equip employees with the necessary skills and knowledge to foster innovation and further operational efficiency in an increasingly AI-driven ecosystem. Cultivation of talent that supports AI adoption and recognizes the critical role of skilled professionals in driving successful digital initiatives is necessary to remain competitive.

Amid escalating cybersecurity threats, there is a heightened focus on board education and reporting by management on potential vulnerabilities and response plans against evolving risks. This is underscored by the real possibility that the U.S. Securities and Exchange Commission (SEC) will introduce rulemaking on the disclosure of company’s AI and data governance, making it imperative for boards to monitor regulatory changes closely and uphold transparency in disclosing AI practices and data governance protocols.

4. Enterprise Risk Management

Boards and committees are intensifying risk oversight, placing a greater emphasis on supply chain risks, response plans, and workarounds. Key considerations include, reviewing processes for identifying potential disruption risks and opportunities across various dimensions like geopolitical, economic, digital, social, and environmental factors, while assessing their impact on long-term strategy and capital allocation decisions.

With the emergence of new risk horizons, the board and committees are called upon to reevaluate their capacity and expertise to oversee a wide array of risks from global climate and sustainability reporting requirements to cybersecurity disclosures beyond financial reporting. Continuous evaluation of board and committee responsibilities is essential to ensure proper oversight of emerging risks and update mitigation plans accordingly. Boards are encouraged to regularly monitor the company's risk register, be informed around mitigation strategies and contingency plans, and participate in crisis simulations to enhance preparedness and resilience.

5. Sustainability

It is important to incorporate climate, environment, and sustainability themes into strategy and risk discussions to help drive long-term growth. Effectively accomplishing this goal comes down to transparency and accountability. Specifically, management teams, boards, and committees play pivotal roles in preparing for potential disclosures at state, federal, and global levels and providing oversight in terms of the reliability and quality of underlying data.

External communication of sustainability initiatives demands caution to bridge the gap between company ambitions and actions. An emphasis on authenticity is essential to building trust and upholding credibility around sustainability efforts. Companies may contemplate the inclusion of sustainability metrics in executive compensation to drive accountability and incentivize progress. Linking performance to sustainability goals reinforces enterprise commitment to environmental stewardship and responsible business conduct.

Boards must remain vigilant of evolving state and global regulations around sustainability disclosures, including the Corporate Sustainability Reporting Directive (CSRD) and SEC climate disclosure rules. It is important that companies adapt reporting practices accordingly to ensure compliance with emerging standards while fostering a culture of sustainability-driven decision-making.

6. Stakeholder Issues

Boards and corporate committees are under intensified scrutiny. There is heightened attention from stakeholders on assessing skills related to business strategy, evaluating outside directorships and potential conflicts of interest, and addressing concerns about over-boarding practices. The spotlight is also on succession planning for board members, CEOs, CFOs, and other executive leaders.

With shareholder democracy on the rise, board members may face new liabilities and need to ensure preparedness. Moreover, boards face mounting pressure from stakeholders to showcase transparency and accountability in strategies. It is important that boards be educated and equipped to speak about the company’s strategy and how they manage risks.

7. Competition for Talent & Executive Compensation

Amidst a challenging economic backdrop, companies are reevaluating their incentive compensation programs to ensure alignment with enterprise goals. One strategy involves conducting pay equity studies and culture audits to gain insights to inform public disclosures and statements regarding talent management objectives. With a heightened focus on ethical and regulatory compliance, there is a trend towards incorporating ethics and compliance measures into executive compensation frameworks to uphold best practices in business conduct.

Additionally, companies are driving corporate diversity initiatives and opportunities to foster inclusive workplaces. As dynamics evolve, companies are exploring strategies to empower employees to acquire new skills, particularly in areas such as AI, to support their professional growth and maximize their potential.

8. Regulations

Companies are proactively enhancing their readiness by assessing current environmental practices, risk exposure and mitigation strategies, objectives to streamline processes, and disclosures to meet regulatory standards. Simultaneously, companies are enhancing their preparedness by collecting relevant data and reviewing policies to comply with SEC cybersecurity and climate-related disclosure requirements. A proactive approach also involves evaluating workforce-related metrics, policies, and practices to align with pending SEC HCM disclosure rules and anticipated AI disclosure rules.

In addition, consider monitoring the impact of the Supreme Court decision on the Chevron doctrine, overturning the principle of deference given to government agencies in rulemaking. By staying aware of and ahead of these regulatory demands, companies and boards can strengthen their risk management frameworks and demonstrate their commitment to robust governance and disclosure practices.

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The views and opinions expressed herein are the views and opinions of the authors and do not necessarily reflect those of Nasdaq, Inc.