Publications -

Board Agenda 2018. Top priorities for European boards

EY

EY’s recent publication highlights the most pressing topics and questions facing boards of directors and Audit committees in the continually changing environment of business in Europe.

Building on Board Agenda 2017, the updated 2018 agenda identifies the following ten key aspects to be taken into account at the highest levels of corporate decision making, and poses five questions regarding each for boards to focus on:

  1. Developing long-term value and defining corporate purpose. Companies face a growing set of challenges, as greater scrutiny from stakeholders begins to gather pace. EY considers that governing bodies must address three key issues: Are they transparent in the way their value creation strategy is transforming? Are their stakeholders’ rapidly evolving needs being recognized? And how is that narrative playing out?
  2. Interacting with shareholders. The EU Shareholders’ Rights Directive 2017/828 of the European Parliament and Council, 17 May 2017, amending Directive 2007/36/EC, regarding long-term engagement with shareholders, highlights the need to align investors’ sometimes short-term strategies with the long-term interests of shareholders.
  3. Corporate reporting. It considers that the governing bodies must be ready for regulatory changes regarding public reporting, establishing a proactive communication strategy to engage with stakeholders, especially regarding information on non-financial issues, risks and corporate governance.
  4. Optimizing capital allocation decisions. The role of the board and its committees is to be a ‘constructive challenger’ in growing the company, questioning the business model and the way risks are managed, especially during times of technology disruption. The report underlines the importance of establishing tools to measure ROI (return on investment) in order to inform companies’ decisions on the optimal way to allocate their capital.
  5. Enhancing talent and corporate culture. EY considers talent to be a strategic asset. Corporate culture should emanate from the highest levels of the company and diversity among board members and employees is closely related to improving the company’s productivity.
  6. Defining reward. Disclosing the remuneration policies for the sake of transparency. Boards and their committees should consider that shareholders have ever broader access to information and will be able to benchmark it against similar organization’s in other jurisdictions. More transparency will lead to better scrutiny and a more informed discussion of executive remuneration.
  7. Strengthening partnerships and governing risk. Understanding and managing third-party risk is a corporate priority. The board and its committees must identify their companies’ exposure from integration of supply chains and data distribution in order to put in place tools to mitigate it. It cites the new European General Data Protection Regulation as an example of the new kinds of risks facing companies.
  8. Managing cyber risk – a new era of security. The report highlights the high impact that cyber risk can have on a company. It proposes updating and training directors, senior managers and all employees to better tackle this issue, empowering staff to spot and report cyber threats. Effective policies and controls must be put in place to encourage vigilance at all times.
  9. Reflecting on new responsibilities for audit committees. Regulatory changes in auditing focus more and more attention on how audit committees must ensure their members are suitably trained and have the required expertise to oversee the external auditors and assess the quality of audits, Preparedness must include greater insight into how technology works in each company and business.
  10. Creating boards of the future. The tenth point looks ahead to what will happen to boards in the future. It focuses on the fundamental importance of diversity to build up suitable criteria that reflect the values of the societies in which the companies operate and to ensure a range of profiles in order to challenge professional strategies and business methods.