10 minute read 23 Jul 2020
Beautiful landscape in Greenland

How boards can use megatrends to chart a new course

By

Sharon Sutherland

EY Global Center for Board Matters Leader and Asia-Pacific Networks Leader

Global mindset. Power through diversity. Art lover. Intellectually curious. Traveler. Legacy matters. Passionate about learning initiatives.

10 minute read 23 Jul 2020

From oversight to foresight: boards must adopt a futurist mindset to reduce the risk of missing out on the next big thing.

This article is part of the EY Megatrends 2020 and beyond report.

In brief
  • Four megatrends – decarbonization, behavioral economy, future of thinking, and work and life unbounded – will have the most impact across boardrooms.
  • Boards should carefully analyze these trends and consider incorporating them into scenario planning to help shape their response.

How will we emerge from this current pandemic in a way that we can be proud of? How will we help protect our organizations while supporting a strategic shift to creating long-term value? Will we look back and be confident that we took adequate time to truly look forward and reframe the future?

These are some of the questions that undoubtedly are occupying board members’ minds right now. While management contend with resiliency throughout this critical time, boards need to adopt a “futurist” mindset in order to ensure organizational sustainability in the long-term. In other words, they need to recognize and respond to how society is shifting in a post-pandemic world.

Some of these shifts were already happening but have now been accelerated. As an example, technologies such as artificial intelligence (AI) and the internet of things were already transforming everything from consumer behavior to the nature of work before COVID-19 arrived.

So, what’s on the horizon and approaching fast, that boards need to keep in view?

Long-held assumptions about industry structures, markets and the nature of competition due to convergence will be up for challenge. And the global system will be reshaped by everything, from shifting power dynamics to robot assistance.

The EY Megatrends report, published every two years by EYQ, EY’s think tank, offers board chairs and other directors an organizing framework for adjusting and adapting their strategy to be at the forefront of these and other significant disruptive changes.

While management contend with resiliency throughout this critical time, boards need to adopt a “futurist” mindset in order to ensure organizational sustainability in the long-term.

The report focuses on eight megatrends created by four primary forces: technological innovation, globalization, demographic shifts and environmental change.

Of the eight megatrends (decarbonization, techonomic cold war, behavioral economy, synthetic media, future of thinking, work and life unbounded, microbiomes and synthetic biology), the EY Global Center for Board Matters has identified four that have the most impact and applicability across boardrooms in every industry, geography or governance model. These are:

  1. Decarbonization
  2. Behavioral economy
  3. Future of thinking
  4. Work and life unbounded

We have set out the implications of each megatrend for boards and then offered recommendations on what they can do to respond.

The upside of disruption inforgraphic
1. Decarbonization

Dissatisfaction with government progress on climate action has been growing for some time, and society is increasingly looking to businesses to bridge the gap. The 2019 CEO Imperative Study reveals that both investors and boards expect CEOs to respond to humanity’s greatest challenges, including climate change, with many investors now raising the stakes vis-à-vis the proactive pursuit of ethical investments.

This means boards must continue to champion climate-related considerations with their management teams to ensure they are factored into their ongoing decision-making processes. Doing so, if truly authentic, will not only position the organization as a favorable investment proposition but equally ensure they attract the talent they need for long-term growth. Generation Z’s expectation is that organizations and brands will go beyond marketing to truly measurable differences. And as Generation Z matures, organizations will be expected to not only be climate-neutral but also to make a net positive contribution.

As such, boards have a critical role to play in demanding more frequent and in-depth reporting metrics on social and environmental performance. There is no question that investors are increasingly analyzing and comparing organizations for capital allocation trade-offs as stakeholders hold them to account. With executive and board remuneration and incentive packages under review, it is likely that we will see a heightened interest in this area from a strategic standpoint and underpinned by evolving policy decisions.

  • Actions for boards

    • Address short-termism head on by not just focusing on profits but also on people and planet
    • Take personal responsibility to find the appropriate mechanisms (including remuneration and personal leadership) in formulating short- and long-term plans that work toward solving the broader challenges in the enterprise’s future operating environment
    • Steer management to develop performance metrics that promote sustainable opportunities and express the long-term value initiatives of the organization; be transparent with stakeholders around what the metrics are and regularly review and share progress against them
       
  • Questions boards should be asking

    • Does management incentivize innovation that contributes to a decarbonized business model? If yes, how are we measuring our progress? If no, what are the opportunity costs of not doing so?
    • What information is available to the board on the impact of climate-related risk issues? What is the source of the information? How often is it reviewed? Do we benchmark ourselves against industry peers? And are we able to measure the tangible and non- tangible impact on both our brand and financial results relatively?

2. Behavioral economy

Human behavior is becoming a commodity — quantified, standardized, packaged and traded, as much as consumer data is today. This commoditization, combined with the maturing of disciplines such as behavioral economics and affective computing, may enable organizations to influence and shape consumer behavior as never before.

Consumer preferences

62%

Percentage of consumers in our Future Consumer Index that are more likely to purchase from companies that are doing good for society.

While behavioral economics applies insights from psychology on the decision-making of individuals, affective computing, also known as emotion AI, brings machines into the realm of human emotion.

Consequently, organizations must use behavioral economics and affective computing to measure, understand and shape behavior, while being transparent with their consumers.

In parallel to understanding customer’s preferences, organizations must also consider what kind of consumer is emerging and what new customer segments are being created. The EY Future Consumer Index, published in April 2020, found that 62% of respondents are more likely to purchase from companies that are doing good for society. This means that organizations need to be on their A-game at all times. Better transparency, not secrecy or defensiveness, is key. And those that do it well will have a sizable competitive advantage.

  • Actions for boards

    • Steer management to revisit their strategies to bring the voice of the customer into the boardroom
    • Bring behavioral expertise/subject matter experts into boardrooms to better understand the evolving needs of the consumer
    • Adopt sophisticated customer-focused techniques such as behavioral economics or affective computing
    • Continue to drive a robust conversation about brand and brand promise on how we will we remain relevant to tomorrow’s customers and their expectations around the role of the organization in society
  • Questions boards should be asking

    • What data is available on the industry-wide impacts of changing consumer behavior?
    • What new risks does the behavioral economy raise (regulatory, reputational and market), and how might we understand and help mitigate them?
    • How can we fundamentally address the tension between long-term value creation and short-term earnings pressure?
3. Future of thinking

There is no question that technology is profoundly changing how we think and act: from social media and smartphones to “intelligent technologies” like robotic process automation and AI. And at work, it permeates just about everything we do.

As such it is critical that organizations strike the right balance of adopting and deploying digital technologies that liberate staff for higher-value activities while at the same time preserving human centricity.

Technology is also creating new challenges with respect to trust. In an era of synthetic media technologies such as “deepfakes,” how will organizations ensure that the information and technologies they deploy are trusted? And how can they ensure they are protecting against and mitigating cyber risks including disinformation, phishing and malware? Failure to do so comes at a high cost, both financially and reputationally, and few organizations these days can afford any avoidable missteps. This is why it cannot be the sole responsibility of the technology office but rather should be embedded into risk management processes aligned to company culture.

  • Actions for boards

    • At a minimum, understand the basics of digitalization but, in parallel, proactively seek ways to stay current and commit to life-long learning via education programs, advisory boards, war-gaming, specialist digital advisers and good old-fashioned reading
    • Closely monitor with management the organization’s approach and investment in digital strategy and cybersecurity to ensure they are agile and regularly reviewed and tested to ensure resiliency and adequacy
    • Encourage “use cases” for AI to create more sustainable and resilient systems to cope with future crises and to combat the threat of misinformation and bias
  • Questions boards should be asking

    • How often do we talk about the organization’s digital and cybersecurity strategy? Do we have enough expertise, not just within, but surrounding the board to challenge and guide management effectively? Do we know what we don’t know?
    • How can we be reassured that the technological and human-centric design approaches that management is advocating and investing in will provide sufficient future competitive advantage? What are the proof points and how often are they re-evaluated?
    • What are the mechanisms we have in place to protect the organization’s brand, its customers and employees from misinformation? How are they determined and prioritized? And how often are they reviewed?
4. Work and life unbounded

The boundaries that define work, leisure and learning are blurring more than ever before.

For employers, this presents both huge opportunities and significant challenges. On one hand, they have an unprecedented opportunity to increase job satisfaction and productivity. On the other, they need to rethink the work environment, along with the way they approach their best asset: people.

However, the EY global board risk survey conducted in late 2019 showed that board directors ranked people issues as only the seventh-most important risk in the short term. Boards should re-prioritize the importance of talent and workforce issues by viewing them not simply as the domain of management but instead contextualize within their broader organizational purpose.

  • Actions for boards

    • Demonstrate the right tone at the top and work with management to incentivize a culture of inclusiveness
    • Work with management to reimagine how to engage talent in the new, decentralized operating environment, and encourage management to conduct frequent pulse surveys and course correct where necessary
    • Carefully think through the existing brand promise to employees and segments within the workforce to make sure it is fresh, relevant, actionable and authentic
    • Elevate the people agenda, particularly around employee wellbeing and engage subject matter experts such as mental health professionals where appropriate
  • Questions boards should be asking

    • Will employees be more committed in a remote-working future? And if so, is management preparing to make long-term changes to work practices?
    • How can we challenge management to prioritize and build its “people culture”? How is management continuing to drive a culture of inclusiveness? Are there appropriate metrics or accountability forums in place that truly measure their effectiveness in a timely manner? Are there employee feedback mechanisms in place that provision for honest and constructive feedback?

What are the next steps for boards?

By adopting a futurist mindset and by viewing their organizations through the lens of these megatrends, boards will be better equipped to work with their management teams to take informed and decisive actions for long-term success.

We suggest board members carefully digest each megatrend and consider the potential impacts and implications not just as single issues but rather as interdependent forces to be built into the organization’s strategic frameworks. More importantly, we recommend that boards and management teams develop scenarios containing these trends and identify the associated areas of risk and spaces of possibility. Scenario development is an often discussed but seldom utilized tool for board and executive teams to stress-test their thinking; when properly done, it provides a foundation for exploiting upside and better anticipating downside.

Finally, forward-looking boards are already exploring new value drivers, however many of the societal impacts the pandemic has triggered are still to occur. As such, it is critical that the entire board, driven by the chair, continues to lead and “listen and learn, not simply teach and tell.”  

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Summary

The role of the board is fully in focus as society shifts in a post-pandemic world. The EY Megatrends can help boards to adopt a “futurist” mindset in order to ensure organizational sustainability in the long term.

About this article

By

Sharon Sutherland

EY Global Center for Board Matters Leader and Asia-Pacific Networks Leader

Global mindset. Power through diversity. Art lover. Intellectually curious. Traveler. Legacy matters. Passionate about learning initiatives.