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How audit committees are adapting to change in Q1 2025
Join the EY Center for Board Matters on Tuesday, April 8, 2025, at 3:00 p.m. Eastern for another episode of Better Questions for Boards, our webcast series designed to provide directors with insights and questions to consider as they engage with management on a variety of complex boardroom issues.
As the first quarter closes, audit committees and management teams are navigating numerous policy shifts, ongoing geopolitical volatility and a dynamic business environment. This webcast will address evolving audit committee priorities and topics, such as:
2025 global economic update: Get up to date on the macroeconomic environment, including observed and potential economic impacts of Trump administration policies. Hear about the outlook for inflation, possible effects of tariffs, and other key economic measures audit committees and boards will want to monitor.
2025 geostrategic outlook: Find out about how companies are adapting to new global uncertainty, including how geopolitics are likely to impact businesses in the year ahead. Additionally, hear about effective practices for managing and overseeing geopolitical risks.
2025 M&A outlook: Hear how shifting regulatory priorities, trade policies, tariffs and potential tax cuts may shape mergers and acquisitions (M&A) activity this year. Learn about corporate M&A trends, including key sectors to watch and key deal drivers to monitor.
This CPE-eligible webcast will be 60 minutes. The discussion will be moderated by Patrick Niemann, Partner, Ernst & Young LLP, and Americas Leader of the EY Audit Committee Forum. Panelists will include:
H. Mallory Caldwell, EY-Parthenon Americas Strategy and Transactions Corporate & Growth Strategy Leader
Karen Dynan, Nonresident Senior Fellow, Peterson Institute for International Economics
Dwight L. Jacobs, SVP of Supply Chain and Chief Procurement Officer, Duke Energy; Board Director, HomeTrust Bancshares, Inc.
Courtney Rickert McCaffrey, EY Global Geostrategic Business Group Insights Leader
Key takeaways
The range of economic outcomes is wider than usual, and the odds of the US entering a recession are a bit higher than usual. For audit committees, this suggests a need for contingency planning to consider what happens if inflation runs hotter, interest rates rise, stagflation sets in or global demand softens more than expected.
We operate in a complex, interconnected world. Boards have to take theories and make them practical in doing their work for the shareholders, and they need to be comfortable with the company’s ability to navigate the ever-changing landscape.
Boards’ and audit committees’ job is to think about how political movements might increase the likelihood of activism or social unrest in some markets as well as the potential for reputational risks that might go along with policies, particularly if organizations get associated with one side or political actor vs. another. This can be tricky for a company with cross-border operations in markets where the policy direction moves in unpredictable ways.
In terms of practical steps, there are three broad no-regrets geostrategic actions that companies and boards should be thinking about this year:
Engage with a broad set of stakeholders to shape and safeguard strategy. This includes engaging with policymakers, regulators, civil societies, employees, investors and customers, which can help boards and executive teams to plan and adjust strategy to incorporate stakeholder preferences and the risks associated with them.
Conduct political risk diligence for suppliers, market entry/exit decisions, and mergers and acquisitions (M&A). It’s important to weave political risk assessments into those forward-looking strategic decisions, so that the company can be better positioned to remain agile and resilient to address future geopolitical risks.
Use strategic foresight to build resilience to the future uncertainty. It’s important to think through the possibilities, conduct tabletop exercises and think through different political risk scenarios so that you can build muscle memory and agility and resilience to prepare for the next geopolitical event or crisis occurs.
No one knows what risks will pop up next and having confidence in a strategic plan can feel daunting. To add confidence and build resilience, scenario planning will be critical in this environment. Evaluating scenarios will allow the board and C-suite to better understand the durability of the business and business plans by looking at them through various lenses under various circumstances. Doing scenario planning better, and doing it often, will help you define risk appetite and build good muscle.
As we rounded the corner into this year, we saw an increase in deal conversations. Since then we haven’t seen an explosion in deal activity. This is in part because there is still a lot of uncertainty about how the Trump administration’s actions may play out and evolve. However, we still have a strong outlook for M&A this year.
We continue to see some deals on a smaller scale (transactions less than $10b). Part of that is companies acquiring a new capability. It’s not doubling the size of the organization – it’s bringing in a new platform, capability or technology at a smaller scale. That could be done without a full acquisition, using a partnership or joint venture.
We are in a rapidly changing economic environment and determining whether transactions make sense under multiple scenarios is the risk at the moment. But there are perennial risks – so it’s important to keep a sharp focus on the strategic and economic rationale for the transaction, to make sure value is captured and the payback is embedded.
Boards need to stay for the journey and keep management’s focus and attention on seeing through the transformative potential of deals rather than stopping months after, when the first level of integration is happening.
What we learned from the audience polls
Audit committees are focused primarily on macroeconomic uncertainty and the regulatory environment. Trade and supply chain issues were also viewed as an important focus areas.
Given the uncertainty of today’s market, the audience was split in terms of whether their company had plans to pursue M&A activity in the next 12 months.
Most poll respondents said that they did not have significant visibility into their companies’ exposure to political risk across your operations, markets and suppliers.
More than half of those who answered said that accelerating top line growth, optimizing operations and improving productivity are the most important outcomes when evaluating potential acquisitions.