Corporate boards are going to be tested in 2022, particularly on ESG, experts are predicting. That means CFOs can expect to be asked to step up on measuring their organization’s performance on environmental, social and governance (ESG) criteria and other matters.
“Boards are at a pivotal moment,” KPMG’s Board Leadership Center says in a forecast. “Demand for action on ESG performance, including climate risk, economic and supply chain challenges, a fast-changing regulatory landscape and other factors impacting the global risk environment will continue to challenge even those boards at the top of their game.”
The organization says boards will be called upon to be more tech savvy, particularly in regard to cybersecurity. Aligned with this, data governance will be key, from compliance with industry-specific privacy laws to how a company processes, stores, collects and uses personal data.
That means issues around data ethics will take center stage. CFOs can expect some tension as organization leaders look at how to use customer data in ways that are legally permissible and meet customer expectations.
Thinking on supply chains should also be front and center, the consulting firm says, in terms of resiliency and long term planning.
Boards will also be forced to be more proactive on the diversity of their members in skills, experience, thinking, gender, race and ethnicity as business model disruption and technology concerns become more prevalent.
Audit committee focus
The experts are calling on audit committees to understand how technology is impacting the finance organization’s talent, efficiency and value-add.
As tech presents important opportunities for finance to reinvent itself and add greater value to a business, KPMG is suggesting audit committees focus on plans to leverage robotics and cloud technologies to automate as many manual activities as possible and try to better understand how the finance function is using data analytics and artificial intelligence to develop sharper predictive insight and better deployment of capital.
“The finance function is well-positioned to guide the company’s data and analytics agenda and to consider the implications of new transaction-related technologies from blockchain to cryptocurrencies,” the firm advises.
The focus on climate change and other social issues was intense in 2021, it will be even more so this year, another expert predicts.
“2022 will be a year in which the letters ESG will be discussed as often as the letters ROI and EBITDA,” said David Greenberg, the former CEO and current special advisor at LRN Corporation, a SaaS education and advisory services company specializing in ethics and compliance. “CFOs should expect to see climate related metrics in everything from demands from institutional shareholders to financing covenants.”
The intensity will be particularly relevant to CFOs in discussions with boards and audit committees on corporate culture, particularly on how to define the culture companies aspire to and how to measure it.
As a mid-term election year, Greenberg is expecting the Biden Administration to make regulation a key selling point for Democrats, requiring CFOs and audit committees to make room for deeper discussions and collaboration with chief ethics and compliance ffficers and their teams.
He adds many CFOs and audit committees will need to become more fluent about block chain and crypto currency, or they’ll be left behind.
In the technology sphere, fintech will become more pronounced in real estate. A number of startups are bringing loan origination, crowdfunding, factoring, fractionalization and advanced UI/UX to bear on the large and high-value assets, forecasted Raj Singh, managing partner at JLL Spark Global Ventures, a venture fund investing in early to mid-stage property technology startups.
Singh is predicting the special purpose acquisition company (SPAC) spike of 2021 will be less in 2022 as the Securities and Exchange Commission becomes more deliberate in its examination of candidates.
“The trend may also gain, or lose, strength based on how this year’s SPAC mergers perform as they deSPAC and start trading as public entities,” said Singh.
Making boards diverse is going to take concerted time and effort in onboarding since many of the new board members lack prior public company governance experience, says Keith Meyer, co-leader of the CEO and board practice of Allegis Partners, a recruiting firm.
He predicts continued inflation, supply chain disruptions and workforce shortages will lead boards to reassess their business strategies and look for new sources of profit growth, potentially fueling another round of M&A activity, corporate carve outs and a shift in investment plans.
Meyer is looking toward workforce issues to become one of boards’ top priorities – from mental health to employee motivation and retention – and be viewed as a critical enterprise risk factor that will test some audit committee’s ability to address, in part due to a lack of related expertise within the committee or even on the full board.