It may not be easy, but the challenge for Boards and senior leaders at present is to try to figure out what their organisations will look like once the economic landscape begins to stabilise. What are the decisions that need to be taken that mean a business has that competitive edge if it is to be successful?
Criticaleye spoke to a mix of Board-level directors to get their sense of where businesses need to focus over their coming months if they’re to emerge successfully through this period of uncertainty.
This is what they had to say:
Culture, Capability and Capacity
Neil Hayward, Governor & Trustee at Solent University, Non-executive Director at the National Skills Academy for Rail and Chair of the Industry People Board for the British Horseracing Authority
If I look at what’s facing companies now compared to more recent times, there is a shortage of labour, and it affects most western economies. There's a demographic time bomb around fewer young people entering the workforce and much older ageing populations retiring earlier.
There are clearly different expectations around what the world of work is and should be between generations and flexible and hybrid is a part of that. And then I think there's more pressure on business in general to adapt, respond, change and move quickly. So, those are four things that create talent risks or talent problems for organisations, and I think bring this to the fore.
Allocation of people is what determines if the allocation of capital works or not. And the differentiation in strategy is in the execution – the quality of the doing not just the quality of the thinking.
So called top talent isn’t just the top two percent of an organisation’s people. It is both the few –think dozens of people – in the critical roles that deliver value, and the top two percent of employees (the truly special talents in the critical functions and roles that disproportionally deliver greater impact). In my experience as a HRD until very recently, these roles and the talent pools feeding into them were all too often blind spots at a Board level, but ones that surely should’ve been better understood. In general terms more time and focus on the 3 Cs – culture, capability and capacity – would prove instructive. These are amongst the most critical enablers of business success.
The Impact of ESG on Remuneration
Devyani Vaishampayan, Remco Chair & NED at Saietta Group Plc and a Board Mentor at Criticaleye
Executive pay levels at FTSE 100 companies are largely back to pre-pandemic levels and the average total pay of CEOs shows an increase in annual bonuses. The increase is in part driven by a post-Covid boom in some sectors, and in certain cases, due to performance targets which were conservatively set in 2021 to reflect greater market uncertainty.
This year’s AGM season has seen a continuation in companies achieving very high shareholder support (95 percent votes in favour for remuneration reports).
As RemCo Chair, I am looking at moving towards a stronger inclusion of Environmental, Social and Governance (ESG) measures as part of the variable incentive arrangements. Social measures in annual bonus plans continue to be the most common form of ESG metrics, driven by diversity and inclusion, health and safety and employee engagement. Environmental measures are also featuring widely in long-term incentive plans, with metrics relating to decarbonisation or energy reduction being the most common.
Looking at the upcoming 2023 AGM season, higher pay outcomes are likely to be met with greater investor scrutiny, particularly in the context of rising inflation and pay increases across the workforce. It is getting important for senior leaders to create engagement and trust within the organisation and remuneration levels will be increasingly linked to 'softer' factors, but driven by stronger metrics.
Charlie Wagstaff, Managing Director and a Board Mentor, Criticaleye
Boards don't like surprises so it’s important to understand how to manage the current mix of volatility and uncertainty.
The approaches to risk management are changing, factoring in greater agility. This allows for problems to be anticipated and dealt with, making them easier to resolve. The last thing you want to do is to spring a surprise on the Board and put it into a tailspin – open communication is absolutely crucial in times like these.
Of course, risk isn’t only about navigating threats, but also identifying opportunities and where a business can gain competitive advantage. We will see strategic M&A over the next 18 months and investment in technology will continue as business models pivot to meet shifting customer behaviours and demands.
However, the cultural dynamic is what will be uppermost on the minds of many senior leaders. I do think that's one of the interesting changes we’ve seen from a Board perspective, as they are much more aware of the link between people, performance and purpose.
In periods like these, it’s even more important for executive and non-executive directors to understand that volatility is part of a cycle and therefore they must be weighing up both short and long-term priorities. Without that strategic viewpoint, the danger is that an organisation will have lost its competitive advantage when things stabilise. Keeping a strong balance sheet will of course be essential, but it’s equally necessary to look at growth, innovation and asking the question: ‘Where does this enterprise need to be five years from now?’
Health and Wellbeing Matter
Gary Kildare, Non-executive Director for the Defence Infrastructure Organisation (Ministry of Defence) and a Board Mentor at Criticaleye
The biggest issues for CEOs and Boards right now are in dealing with the confluence of economic and geopolitical conditions that have not really happened for many years.
The risk factors at a macro and micro level have multiplied, such as the cost-of-living crisis, inflation, pay, recession, access to skilled talent, currency fluctuation, increased regulation, audit exposure, low productivity, strike action, Trade Union demands, and stakeholder capitalism.
Through all of this complexity, it's worth remembering that CEOs are expected to lead their business or organisation and to help ensure the performance is 'successful' for stakeholders and shareholders. Even at the best of times, the ‘day job’ aspect of being a chief executive comes with enormous pressure, so I’d add as well that it is clearly going to be absolutely critical that they pay attention to their own physical and mental wellbeing.
This applies outside of the Boardroom too. Being a balanced, collaborative and rounded leader is a good starting place. Being good at managing relationships and a listener will help too. And that will be easier to do if you make sure that there really is an opportunity to take some time out and to spend that time well.