Board directors in 2023 are facing a confluence of challenges and opportunities that are testing the limitations of the governance function in terms of scope and scale. Uncertain economic conditions are currently the number one issue on directors’ minds with the rising cost of capital contributing to elevated input prices and inflation. However, boards are also navigating an increasingly fragmented global economy, which is likely to lead to restrictive regulatory conditions in some markets.
The rising cost of energy and ongoing climate crisis have accelerated the transition to a regenerative economy, which will require board members to champion an integrated and sustained focus on strategy to ensure operational alignment. That said, while 55% of business leaders believe a looming recession will be worse than the global financial crisis of 2008 in terms of length and severity, our recent EY CEO outlook (pdf) suggests that business leaders are confident that fiscal and monetary policy will mitigate the worst aspects of the downturn. As such, many CEOs and boards will see potential reward on the other side of these risks and can identify opportunities to emerge from the downturn with a competitive edge.
Growth predictions vary overall throughout the Asia-Pacific region. Most countries are projected to grow at a faster rate in 2023 than the global average, at around 4%-5%, in part owing to the reopening of China's economy. Some outliers exist — such as in Japan and Australia where growth will be modest. Thailand, for example, has seen a 14-year high in inflation rates — as well as macroeconomic policy decisions that are expected to raise interest rates to combat soaring prices. Korea and Australia are in a similar position. Contrary to the situation in many other countries, China’s inflation rate is expected to remain moderate. With a fluctuating and uncertain economic outlook, boards should focus on their sphere of influence and control: working with management to protect and retain a loyal customer base, create a trusted brand, and engage committed employees with relevant skillsets to carry these organizations boldly into the next decade.
In Japan, Australia, and Korea, where public policy has combined with private investment to fuel innovation and R&D, some positive economic developments offer a silver lining. Equally, a large pipeline of private-public infrastructure projects across Malaysia and Thailand are set to kick-off and reignite these economies after long delays due to the COVID-19 pandemic. “Boards in Asia-Pacific have a real and present opportunity to think creatively about the upsides of the economic downturn,” says Patrick Winter, EY Asia-Pacific Area Managing Partner, “whether that be governing around organizational agility and nimble pricing strategies; encouraging the transition to renewables given the rising cost of energy; or having an ear to the ground when it comes to the next generation’s preferences around working, living and consuming.”