What will worry directors in 2013?

THE DEGREE to which the ‘‘known risks’’ will occupy the minds of directors in 2013 will vary depending on the industry or sector in New Zealand. This may include, for example, a combination of access to capital, low bond rates, slowing growth in emerging markets, the strength of the New Zealand dollar, legislative changes and overall economic uncertainty.

As directors, these questions have been faced over the years and generally processes are in place within most organisations to monitor and manage these risks.

The unknown change is the rise and increased use of social media. The power of social media is huge as stakeholders are no longer limited to raising their concerns in private but can overnight mount a negative campaign against any company.

These campaigns are valid even with incomplete facts. The damage has been done for example once it appears on the internet through Twitter, Facebook or a blog.

External influences on the company’s business will also present huge challenges such as rapidly changing technologies and consumer behaviour.

The 24 hours by seven days a week information cycle can distort and distract from the corporate strategy and damage a brand for a long time or forever. What are the responsibilities of directors here? What strategies need to be in place to monitor and respond appropriately?

This is quickly becoming an important risk that directors and boards will continue to face in 2013 but it’s a risk many company directors and boards do not fully understand, monitor or manage. This is more than reputational risk as there are implications for corporate governance.

New Zealand corporations will encounter major risks from global economics issues such as the European and Chinese economic fragility, political volatility and possibly war in the Middle East. Boards will need to understand and closely monitor the possible impacts on the business.

Risks generated from within corporate structures such as poor corporate culture lay the foundation for scandal and serious damage to corporate reputation. The impact on customer retention and supplier relationships is huge. In the current climate, board members will be seen as personally accountable for the corporates shortcomings.

In addition to dealing with the global economic uncertainty, directors will also worry about trends significantly changing their business and operating models. Many directors view these as structural change that will impact each industry in a different way.

Directors on boards are worried that they may have a ‘‘Kodak moment’’ or face the challenges of Research in Motion creators of the BlackBerry mobile device. For example, in less than five years, many people have migrated to Apple iPhones or Android mobile devices.

In the end, directors will ask themselves these and other key strategic questions about how their business must change to be sustainable. They will also look to the management team to identify these threats and create opportunities for the company.

Boards are also struggling with growth. Growing market share is a huge challenge at present for most companies. This is traditionally an obvious time to be making acquisitions but we are not seeing many due to low confidence levels.

Technology is also levelling the playing field for small to mediumsized companies. With the growing use of cloud services, the competitive advantage of scale gets companies back to looking at talent rather than access to information. This could be the beginning of talent wars.

In these challenging times, boards will continue to ask themselves whether they have built a sufficiently sustainable competitive advantage in the marketplace. Some business models may need to be completely rethought and redesigned.

Directors will need to continue to mentor their CEO and senior management team to meet the changing needs of the business and overcome any barriers to continued growth by setting clear objectives that are tracked closely by the board.

In the end, directors are the guardians of the long-term future of companies. They fulfil this role by encouraging innovation and a focus on long-term strategic opportunities.

2013 will be an interesting year for boards and their directors. I’m an optimist but sounds like it will be pretty much like 2012 – tricky, risky and challenging.

Here’s wishing readers a safe, relaxing and fun holiday season. Henri Eliot is chief executive of Board Dynamics, a consultancy company which provides strategic advice to directors and boards throughout New Zealand and Australia.