The Agile Strategy: Preparing for the Disruption of 2022
As we move from pandemic crisis management into recovery, enterprises and their boards continue to grapple with several pressing issues, including discussions about race and social justice, workforce operations, employee burnout, and elevated cyber risk.
Despite these challenges, the role of an effective private company board remains the same: to manage risk appropriately and to chart a safe course while ensuring the business remains primed to capitalize on future opportunities. This is about empowering the people who make up your organization. But where else should boards focus their attention to ensure proper oversight of disruptive risk and strategy?
The board of the future. If you don’t have the right people at the boardroom table for strategy discussions—whether related to supply chain dynamics, cybersecurity, or talent retention—it’s going to be difficult to make the right decisions and avoid future crises. People with a deep understanding of business operations, knowledge of emerging trends, and keen situational awareness will likely serve you best, regardless of the issues you’re tackling.
Ongoing supply chain shortages are forcing boards to ask whether they have members who understand supply chain dynamics and logistics automation. At the same time, questions about the future of work and employee engagement and retention have forward-looking boards recognizing the need for human resources expertise in the boardroom. Directors with digital transformation experience and strong recruiting and interpersonal communication skills have become invaluable.
Many boardroom and C-suite-level discussions over the past year have revolved around hiring, retention, succession, work-life balance, and digital skills transformation, and the frequency of these discussions has increased, occurring at every meeting and in between meetings as well. There are many forces behind this, including employee burnout, lack of fulfillment, and delayed career transitions because of the pandemic. Understanding what drives your employees can go a long way in having better strategy discussions and in ensuring that your organization has the talent it needs to implement that strategy.
It’s because of this renewed focus on employee engagement that 8.9 percent of private company boards now have a standing human resources or management development committee, according to the NACD 2021 Inside the Private Company Boardroom report, up from 5.4 percent in 2020.
At all levels of the business, finding the right people and empowering them is critical. Surviving the “Great Resignation” comes down to leadership development. It is essential that key employees know how much they are valued. It’s also important that companies allow for new levels of flexibility. Blending physical and virtual teams is certainly a challenge, and it requires sophistication in crafting meaningful internal communications that resonate with employees.
Cyber threats. Cybersecurity must be considered in every strategy decision; without proper security in place, the best-laid strategic plans risk being set back by cyber threats. 2021 saw a 700 percent increase in ransomware events, exposing vulnerabilities in critical systems and infrastructure. And the devastation of cyberattacks is felt not only by governments and large public companies. Verizon’s 2021 Data Breach Investigations Report reveals that when assessing breach data from small organizations (with fewer than 1,000 employees) and large ones (more than 1,000 employees), “the gap between the two with regard to the number of breaches has become much less pronounced.… [T]his year these two are less far apart with 307 breaches in large and 263 breaches in small organizations.” Private companies must not fall into the trap of thinking themselves “too small” to be attacked.
In enterprises large and small, deep digital dependency has made employees and technology systems far more vulnerable to cyber breaches. Many executives and directors believe that managing security risk is the responsibility of the chief information officer (CIO) or chief information security officer (CISO), with oversight from the audit committee. But managing security is really a business-wide issue. Business owners and leaders must all be responsible for identifying and cataloguing their core assets, architecting security into products and services, and ensuring compliance with best security practices. CIOs and CISOs can certainly stay on top of security technologies and implement the best of them across the enterprise, but they cannot be successful without full buy-in from the business. Directors with technology, innovation, and digital skills are increasingly important, as enterprises accelerate their digital transformations and adjust to permanently remote or hybrid work arrangements.
Environmental, social, and governance (ESG) concerns. The need for boards to engage with human capital management, inclusion, and climate change continues. ESG considerations should be embedded into core operations, culture, and the corporate narrative, and require direction and oversight from the board.
Smaller private companies typically are not as focused as large public companies on governance issues, given their less stringent structural and reporting requirements, but environmental sustainability and social issues should be just as important. The list of sustainability initiatives a company could consider might seem overwhelming, but to get started, here are a few simple questions boards can ask management to help narrow the field:
Are we using renewable power in our data centers or manufacturing facilities?
Are we using any electric vehicles in our fleet?
Have we considered sustainable packaging for our products?
Do we use any hazardous chemicals in our products that we can replace?
When it comes to social issues, the reputational stakes are high for companies and leaders that take a stand—or that decide to remain silent. Boards and CEOs should work together to establish guidelines for how and when the company will take a public position on controversial topics. Strong public stances should align with the company’s mission, values, business, strategy, and key stakeholders.
Meanwhile, the business case for greater diversity and inclusion is increasingly obvious. Studies have shown a strong correlation between diversity within executive teams and better financial performance. But diversity alone does not increase effectiveness. To make real progress, it takes organizational dedication and buy-in from executives and the board. Fostering a work environment that encourages open discussion, transparency, and the free exchange of different work styles, voices, and ideas can help organizations better understand and anticipate emerging risks.
Framing these topics in the boardroom so that they align with long-term strategy and value creation is critical. Given investors’ and other stakeholders’ renewed focus on the risks and opportunities associated with ESG issues—as well as the very real consequences of climate change that we are already seeing on an almost daily basis—organizations that proactively identify and incorporate ESG considerations into their long-term strategies will be more resilient to economic, political, environmental, social, and other fierce headwinds in the coming years.
The bottom line is that being an effective leader in such uncertain times requires bold action. But balancing short-term and long-term strategic priorities has proven difficult with so many different crises to manage at once. Companies that focus too much on the present often miss looming risks and issues that are on the horizon. Normalcy bias, or the cognitive bias that leads people to disbelieve or minimize threat warnings, is something enterprises must constantly fight in this climate.
Keep the lines of communication open. Supplementing recurring meetings with open, transparent, and ongoing conversations can mitigate the tension between long-term and short-term threat assessment, and help boards remain agile and able to address the rapidly changing landscape. Finally, ensuring the representation of diverse talent, strengthening leadership accountability, empowering workers through new forms of technology, and supporting a company-wide culture of transparency and understanding will help boards foster greater strategic success in the months and years ahead.
Laurie Yoler has served on more than 25 boards, including at Tesla and Zoox, and is a director at the public company Church & Dwight Co. and at the private companies Bose Corp., Saltbox, Leaf Logistics, and Lacuna Technologies. She is a general partner at deep technology venture capital firm Playground Global in Silicon Valley.