Global governance insights - 2023 IoD Leadership conference

If you missed the Global Governance Insights session at the 2023 IoD Leadership Conference, we’ve captured outtakes from it. These highlight some key insights from the session and outline a few specific actions for directors and boards arising from it.

Board members should:

- challenge orthodoxy
- review long-term strategy frequently
- consider risk management and wider flow on effects
- consider the increasing importance of dealing with government, and the need for new board committees (i.e. government, technology)
- rethink the CEO, chair succession and remuneration
– review the process in line with changing expectations
- consider responses to more recent developments including ESG, climate and culture.

Global governance insights from Dominic Barton, chair of Rio Tinto

Dominic Barton provided a very full “laundry list” of the numerous changes affecting the world and their impact on governance. His advice to directors was to challenge orthodoxy.

Dominic addressed three topics:

1. How the world is changing – and the impact on strategy/governance.
2. The implications of that for business, including NGO and other organisations.
3. What this all means for corporate governance.

1. The changing world we are in

An extraordinary amount of change is occurring in the world at an increasingly rapid rate. The primary changes Dominic highlighted were:

• Climate change issues will be bigger than the industrial revolution. Huge re-allocation of capital investment required in business. Something that affects everyone, but we’ve not quite figured out how to deal with that yet. Challenging times – but also opportunities.
• A power shift to Asia has been going on for quite some time, but has been underestimated by the West. From a government and business point of view, we have not quite caught up yet with the impact of these changes, including shifting trade routes requiring changes to business planning. We need to better understand these changes – if we don’t, someone else will.
• Technology changes have been hugely accelerating. More than just digital – AI and nanotechnology are enabling the development of quantum computers (along with the development of advanced materials).The relentless pace of development will be ongoing. R&D is also hugely important.
• Geopolitical shifts mean we will see a new and different globalisation. It is not clear what those impacts will be yet.
• Changes in capital markets are underway. A growth area is moving away from public to private capital. There are both positive and negative aspects to this. The stock market in UK is now more focused on the short term – bonds rather than equity. The rise of the Middle East as a growing economic centre is another factor to be considered, with the long-term capital available there.
• Increasing income inequality and polarisation has been going on since the early 1990s. This will create instability and other dynamics that need to be better understood.
• Fuelling this is more media misinformation and disinformation than ever seen before, which can accelerate the polarisation mentioned above.

2. The implications for business

Knowing the trends is one thing. Understanding the implications for business and governance is another. Dominic highlighted several implications for business and some key questions:

• What’s your ambition level? Without setting higher ambitions you won’t be relevant.
• Resource reallocation – you can’t assume slow growth and should think about 5-7% resource reallocation. This means some areas of your business will lose resources.
• Why go by quarters or five-yearly plans? The “clock speed” of the world has gone up – you need to act with speed in response. Everyone needs to move faster.
• Non-traditional competitors are emerging, potentially outside your industry. You need to consider the speed at which they can move and potentially impact your business.
• Social license really matters, but how do you measure it, and how do you know if you’re doing well or not?
• Organisational redesign will be required, taking into account all the above.
• Simplicity is required in a more complex world.
• Recruiting and retaining talent is a hugely important issue. Those with the most talent are going to win.

Dominic said this “laundry list” is only going to get longer. Knowing that context, and where we are, we all have to challenge orthodoxy and be ready for change, not just accept things the way they are. Dominic outlined some “touchstones”:

• Bad companies are destroyed by crises. Good companies survive. Great companies are improved by them.
• The greatest danger in times of turbulence is not the turbulence, it’s to act with yesterday’s logic.
• A ship in a harbour is safe – but that is not what a ship is for.
• In the moment of crisis the wise build bridges and the foolish build dams.

3. The implications for corporate governance

Rapid change has had significant implications for corporate governance:

• Strategy is very important but often underdone. There is a need to think long term, and revise strategy not once every five years, but every year.
• Risk management includes thinking about the consequences that may follow an initial shock.
• The increasing importance of the role of government suggests new roles on boards may be required, eg government communications or technology committees. What skills will be required?
• CEO/chair succession/remuneration is very important. What is the process? Have you considered the changing expectations of investors and stakeholders?
• Addressing ESG, climate and culture issues will require a rethink of how you measure your performance and use the data obtained.