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While the priorities mentioned already ranked in the top five for the directors we surveyed, they are not the only priorities that boards must balance and address in 2023. Boards will need to guide management on additional business imperatives.
Keeping pace with regulatory developments
In the US, companies will need to navigate federal tax changes in 2022 legislation, including the Inflation Reduction Act and the CHIPS and Science Act of 2022, and prepare for any new tax liabilities, incentives and compliance obligations. Another key area of focus for US companies will be the continued rollout of SEC Chairman Gary Gensler’s ambitious regulatory agenda.
There may be similar challenges across the Americas. In Brazil, for example, the recent presidential election may usher in an energetic regulatory climate — especially in environmentally oriented areas. Boards will also need to stay current on rapidly evolving global sustainability reporting developments, such as the Corporate Sustainability Reporting Directive and the International Sustainability Standards Board.
Boards can narrow management focus to the regulatory developments that are relevant to the business (separating what matters from all the noise) and help management recognize potential challenges and opportunities and prepare their organizations to be resilient and agile in response to evolving regulatory pressure.
Overseeing supply chain resilience
Reliance on single-source geographies has led to production system shutdowns and shortages of critical supplies. Tax incentive regimes that previously drove large operations to lower-cost offshore locations have created long logistical chains and asymmetric talent needs.
Boards can oversee how management does multidimensional risk assessments of the supply chain strategy, including nearshoring, onshoring or “friendshoring” strategies, as well as sustainability strategies, to build resilience. These strategies could be a boon to Latin American countries if US supply chains shift in their favor. For example, Mexican businesses may have an opportunity to serve as a supplier to more US and Canadian companies.
Addressing climate change and environmental stewardship
Coming out of COP27, leading businesses are taking action on climate and positioning themselves as a major player in the climate ecosystem when diplomacy falls short. Companies are decarbonizing, but not at the speed or scale needed to meet global targets.
The credibility of corporate commitments on climate is under increasing stakeholder scrutiny. Company activities are receiving deeper examination from stakeholders in the context of climate commitments. These activities include the Scope 3 emissions generated across the value chain, the use of carbon offsets, direct and indirect political and lobbying, and executive compensation. Boards can proactively build their climate competency, understand the material impacts of climate change on the business, challenge the consistency and integrity of company commitments and drive multiple sources of value by overseeing how the company puts climate action at the heart of strategy.
Guiding geopolitical considerations
The era of relatively liberalized global trade amid ever-increasing globalization has ended (at least for now), and the role of geopolitical dynamics is increasing relative to economic considerations in business decisions. A number of geopolitical developments will have significant business implications in 2023.
Uncertainty around the war in Ukraine will remain high, potentially resulting in more sanctions, supply chain disruptions and higher prices. As the US and EU economies disengage from China and vice versa, there is likely to be a steady erosion of economic connectivity between China and the West, which could result in supply chain reorientation and diverging growth and investment opportunities. At the same time, many governments are pursuing economic self-sufficiency through a variety of incentives and restrictions that will impact business, with technology and energy continuing to be key focus areas.
Boards can guide management to proactively consider how geopolitical developments may affect growth opportunities, the supply chain, strategic options and stakeholder expectations.
Across all of these additional priorities, boards can guide management by acting as stewards of the long term and a critical source of effective challenge.