Ten Areas That Financial Services Corporate Boards Need to Become More Educated & Prepared Due to Emerging Trends

In last week’s post, Why Financial Services is Facing Increased Complexity in Board Oversight & Corporate Governance, I discussed the four increasing complexities that are requiring Financial Services corporate boards to become more educated and prepared. The following is a deeper dive into the ten areas, many of which are new requirements from as little as five years ago:

• Geopolitical and economic risks – Boards need to maintain focus on how management is addressing geopolitical and economic risks and uncertainties. This environment calls for continual updating of the company’s risk profile and more scenario planning, stress-testing strategic assumptions, and analyzing downside scenarios.
• ESG in risk/strategy discussions and evolving global regulations – How companies address climate, DEI, and other ESG issues is viewed by investors, research and rating firms, activists, employees, customers and regulators as fundamental to the business and critical to long-term value creation.
• Data governance considering cyber security, data privacy and AI – A holistic approach to cybersecurity and data governance is a fundamental principle which is predicated on five key elements of resilience (preparation, prevention, detection, mitigation and recovery). Data governance overlaps with cybersecurity, however, is broader, and includes compliance with industry-specific privacy laws and regulations that govern personal data and policies and protocols regarding data ethics.
• Talent, human capital management (HCM) and CEO succession – The most dramatic change in the employee value proposition occurred during the pandemic and employee empowerment has not abated, including demands for fair pay, work-life balance, interesting work and opportunities to advance. Pivotal to all of this is having the right CEO in place to drive culture and strategy, navigate risk and create long-term value.
• Operational resilience – Operational resilience is the ability to bounce back when an operational incident occurs and the ability to stand back up with viable strategic options for staying competitive and on the offense in the event of a crisis, such as ransomware, a cyberattack, or a pandemic. Financial regulators are starting to view operational resilience on equal footing with, and as a key driver of, financial resilience.
• Crisis management – Disruption, strategy and risk should be hardwired together in the boardroom discussions. Crisis management not only protects an organization’s reputation, but also manages threats to the company’s financial viability, it’s employees’ health and overall public safety.
• Board’s committee structure and risk oversight responsibilities – The increasing complexity and fusion of risks unfolding simultaneously requires a more holistic approach to risk management and oversight. Given the challenging risk environment, many boards are reassessing the risks assigned to each standing committee.  They are also considering whether to reduce the major risk categories assigned to the audit committee beyond its core oversight responsibilities.
• Boardroom talent, expertise and diversity – Companies must think strategically about the talent, expertise and diversity in the boardroom. Boards, investors, regulators and other stakeholders are increasingly focused on the alignment of board composition – especially expertise and diversity – with the company’s strategy.
• CEO communications around social and political issues – Clarifying when the CEO should speak out on social and political issues is moving front and center in the boardroom. A company’s public positions, or the choice of silence, is under increasing scrutiny from employees, customers, investors and stakeholders.
• Engagement with shareholders, activists and other stakeholders – Given the intense investor and stakeholder focus on executive pay and director performance, as well as climate risk, ESG and DEI, particularly in the context of long-term value creation, engagement with shareholders and stakeholders must remain a priority.

Developing and maintaining a high-performing board, that adds value in a rapidly changing and challenging environment, requires a proactive approach to board-building and diversity, including skills, expertise, thinking, gender and race/ethnicity.  It is important to recognize that many boards will not have “experts” in all areas and many, in some cases, need to engage outside experts.

*Judd Caplainis the former Global Head of Financial Services at KPMG.