Digging Deeper Into Macroshifts

Sometimes it’s the not-so-surprising survey findings that call for deeper attention in the boardroom. Prior to KPMG’s September Board Leadership Center webcast, Geoeconomic Outlook: Post-Election and Beyond, we asked corporate directors which issues were highest on their radars and how confident they were in their companies’ ability to pivot effectively to different scenarios, in the United States and globally, post-election. The results are perhaps not surprising, but they are telling.

Among more than 330 respondents, the issues at stake in the November US election cited as drawing the most attention from their boards are taxes and fiscal policy (52%); trade policy, including supply chain and national security issues (33%); technology regulation, including regulation related to artificial intelligence (AI) and cybersecurity (29%); and monetary policy (27%). The global issues that directors said were of greatest concern to their boards are cyber and AI-related risks (54%), international trade (28%), and climate change (25%).

At the same time, only 26 percent of respondents said they are “confident” that their companies are positioned to pivot to meet different scenarios in the United States and globally post-election; 53 percent are “somewhat confident,” 9 percent are “not confident,” and 7 percent are “unsure.” Only 5 percent expect no major pivots.

A company’s agility and ability to pivot will increasingly hinge on the insights, probing, and challenging of assumptions that the board brings to management’s deliberations. Helping management think through scenarios and the implications of macroshifts underway—from generative AI (GenAI) and the post-election regulatory landscape to geopolitical uncertainties and emerging cyber threats—will require deeper knowledge and the ability to connect critical dots while keeping the big picture in view.

Below are themes that may be helpful as boards refine their oversight and enrich their contributions to these pivotal conversations:

• As GenAI moves from market buzz toward creating business value, directors should understand the technology from a board-level perspective, including how GenAI is being used by the company; if and how it is generating business value; how the company is managing and mitigating its risks; and the guardrails and governance management has in place. Who within the company has primary responsibility for GenAI? Where on the board or board committees should oversight responsibilities for GenAI reside?
• The risk of data breaches and malware attacks continues to mount, with GenAI enabling cybercriminals to scale their attacks in terms of speed, volume, variety, and sophistication. Boards should sharpen their focus on the company’s cybersecurity posture, including by periodically reviewing management’s cybersecurity risk assessment, taking a hard look at supply-chain and third-party risks, insisting on a cybersecurity scorecard (tracking the volume, nature, and materiality of attacks), and understanding and periodically reassessing the company’s cybersecurity incident response plan. Data governance related to privacy, security, and ethics should be looked at holistically and integrated into the company’s risk management process.
• Key to assessing the company’s governance structure and processes for managing geopolitical risk and uncertainty is helping ensure that management has robust processes in place to identify key geopolitical risks and their potential impacts on the business; to clarify individual responsibility for developing a mitigation plan for each risk and holding those individuals accountable; and to provide robust, periodic reporting to the board on the company’s critical geopolitical risks, including current risks, future scenarios, and crisis-readiness plans. Obtaining a diversity of perspectives, including third-party expert views, regarding the company’s geopolitical risks and management of those risks, and considering the board’s own geopolitical acumen and oversight framework are also vital. As detailed in KPMG’s report, Shifting Geopolitics and the Role of the Board, an enterprise-wide approach to monitoring, assessing, and mitigating geopolitical risk is imperative to shift from a reactive stance of crisis management to a proactive, long-term planning approach that can help turn geopolitical risk into smart risk-taking and opportunity.
• With the upcoming US election posing two very different policy scenarios—related to taxes and the regulatory environment, infrastructure investments, foreign policy, and more—the board should understand the breadth and depth of management’s scenario planning. What variables are “more forecastable?” What are the potential impacts of different scenarios on cash flow and, from an audit committee perspective, what are the impacts to assets that may be sensitive to cash flow projections? More broadly, what mechanisms are in place for monitoring regulatory change at the federal, state, and global levels? 
• Expect a bumpy ride on climate change and the energy transition and monitor three factors that are likely to determine whether a moment of disruption has arrived: the availability of viable energy alternatives, the presence of incentives to implement them, and the readiness of the marketplace to adapt to and accommodate them. For much of the private sector, this tipping point and the transformational opportunities are already in view. Even as demands for more and better climate disclosures mount, boardroom conversations are moving beyond the risk and regulatory compliance aspects to include value creation opportunities and integrating climate considerations into business metrics. As KPMG discusses in Climate in Context: Geopolitics, Business, and the Board, strategy and value-creation opportunities, risk, talent, and communication should all be front and center as boards help their companies navigate climate change and the energy transition.

Individually and collectively, these issues will challenge even the most engaged boards. Tapping into a broader diversity of perspectives and taking deeper dives into the implications and scenarios the company may face in the near and longer term are quicky becoming table stakes. Whether companies are prepared for a range of possible futures, the next 6–12 months will be telling.

KPMG LLP is a NACD strategic content partner, providing directors with critical and timely information, and perspectives. KPMG LLP is a financial supporter of the NACD.