Governance news bites
A collection of governance-related news snapshots that you might have missed in the past two weeks.
Heading into 2024 and facing tougher conditions, flexibility will be key.
As the Institute of Directors looks at five key issues facing directors in 2024 – climate leadership, future-ready succession, harnessing AI, enabling productivity, and the value-adding board – the ninth edition of KPMG’s global survey of CEOs reveals a different set of issues for Kiwi CEOs.
The survey, conducted during August and September in 2023, also tells us that New Zealand CEOs are having to flex their priorities to meet tougher conditions.
Here are five key findings that point to areas of concern and opportunity for the C-suite in the year ahead – and our thoughts on addressing them.
More than a quarter (27 per cent) of New Zealand CEOs named ‘supply chain’ as the greatest threat to growth, a big increase from seven per cent in 2022.
While the full-blown supply chain crisis of the pandemic has abated, challenges persist. Our distance from important global markets means a longer supply chain, and more links mean more opportunities for problems. Any disruptions or congestion in shipping networks mean New Zealand’s freight shipping routes are highly impacted, resulting in increased costs, longer lead times and unpredictability.
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It is not just consumers demanding improvements in environmental, social and governance factors. ESG reporting is mandatory for large companies in the EU and UK, and it is on the cards for the US. However, our research suggests local businesses are dragging their feet:
This apparent uncertainty and lack of maturity surrounding the business case for ESG investments may hinder progress. Companies that are progressive on ESG will have a major strategic advantage over their local competitors in the high-end global marketplace.
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“Companies that are progressive on ESG will have a major strategic advantage over their local competitors in the high- end global marketplace.”
We asked CEOs: What do you think is needed to reach your growth objectives in the next three years? Over 30 per cent of respondents chose inorganic growth, which means mergers and acquisitions (M&A) are going to be a priority. And with 84 per cent of Kiwi CEOs stating they are likely to undertake acquisitions in the near future, we are expecting considerably more activity in 2024.
This may present challenges, particularly in industries which rely mainly on discretionary consumer spending, such as hospitality, automotive, durable goods and apparel. It can be challenging for these companies to provide reliable forecasts, and it is tough going for acquirers looking to acquire debt financing. Our survey found ‘availability of financing’ was the most-named precondition for focusing on M&A activity, with 37 per cent of CEOs seeing it as crucial.
M&A can be an effective way to drive growth, but it is vital to get it right.
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This year, 10 per cent of New Zealand CEOs surveyed named cyber security as the greatest threat to their organisation – up from three per cent on the previous year.
In November, a massive cyberattack shut down operations at several of Australia’s largest ports – just one of millions of incursions happening globally every day.
Companies that underinvest in cyber security could be catastrophically affected – the operational, regulatory and reputational risks are hard to overstate. Boosting cyber maturity is a type of insurance for your data and operation. It might seem expensive now, but once your customer data is being held to ransom, the cost of improved cyber security will probably feel like a bargain.
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Inflation-proofing capital and input costs were named by 27 per cent of CEOs as the top operational priority required to achieve their growth objectives over the next three years.
Inflation has hit every industry, making input costs skyrocket and leading to unpredictable margins. Construction, transport and hospitality have been among the industries hardest hit. Interest rates have risen in response, with the official cash rate at the highest it has been since 2008 – and the forecast is ‘higher for longer’.
While consumers were willing to accept price increases in 2021 and 2022, they are now feeling the pinch and spending has declined. Any businesses which can keep their input and interest costs steady will benefit from being able to keep prices stable, maintain profits and grow market share.
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Flexibility will be paramount – both for CEOs who will need to be on top of shifting market conditions, and boards who will need to be ready to flex with them and move at pace when threats and opportunities arise.
The ninth edition of the KPMG CEO Outlook provides unique insight into the mindset, strategies and planning tactics of CEOs. A total of 1,325 CEOs were surveyed globally between 15 August and 15 September 2023, including 30 in Aotearoa New Zealand.