6 Key Challenges for Boards in 2024

After dealing with high inflation, rising interest rates, and the continued economic aftershocks of the war in Ukraine in 2023, American companies were hoping for a quiet 2024. However, while the economy continues improving, new board challenges emerge. With rising geopolitical tensions spanning from the Red Sea to Taiwan, upcoming elections in November, and the increasing influence of AI, 2024 seems poised to be yet another tumultuous year to navigate. 

To help directors chart a clear path, Sodali & Co’s Board and Governance team highlights six key trends that will challenge boards and discusses how good governance can enable them to safeguard their company’s long-term success. 

1. Geopolitical risks have reached unseen levels since the Cold War's end, posing significant business challenges. Ongoing conflicts in Gaza, the Red Sea, and Ukraine are causing supply chain disruptions and energy price volatility- tensions between the US and China, particularly regarding Taiwan, further compound uncertainties. Companies are responding by reconfiguring supply chains and facing challenges in major markets like China due to rising consumer nationalism. 

A potential change in administrations and increasing uncertainty over Congress’s ability to provide additional funding to Ukraine each raise questions about the direction of future US foreign policy, businesses’ uncertainty over potential conflict escalation or contagion. Such uncertainty persists over the future shape of the global financial system, whose gradual weaponization might significantly change access to finance and the sheer capacity to trade and invest in international markets.  

Boards must understand how their business models account for geopolitical shock, ensure management considers all material risks, and have suitable contingency plans. Best-in-class boards may consider organizing workshops or “away days” to examine in greater detail the potential implications of geopolitical events on their business and strategy over time. Companies should maintain these practices through annual reviews.

2. Domestic Polarization: Rising domestic polarization and global political shifts present significant challenges for multinational companies. With elections in key global capitals and the increasing politicization of business at home, boards face heightened reputational risks. Companies must navigate politically conscious consumer expectations while managing potential pushback. Boards must prioritize developing robust mechanisms to address reputational risks and closely monitor domestic and international political landscapes. This is especially crucial for large international companies with diverse operations. Oversight should be led by the board's audit or risk committee, incorporating scenario planning and stress testing to address evolving political dynamics effectively. 

3. Regulatory Expectations: Changes in government can impact economic policies, but regulatory expectations are also shifting. While regulators have previously expanded non-financial reporting requirements, there's now a trend towards cutting back on such demands, particularly in the UK. Regulators may adopt a "lighter touch" approach post-election in the US. Boards must closely monitor regulatory changes across jurisdictions to ensure compliance and adapt governance processes accordingly. The audit committee is typically responsible for overseeing compliance mechanisms within the organization. Best practices involve focusing on areas where regulatory norms diverge and adjusting mitigation policies as new risks emerge. 

4. Corporate Finance: Such questions come against the background of ongoing changes in the corporate finance environment. Although we are no longer in the zero-interest rate world of the 2010s, expectations are that– although the Federal Reserve is likely to begin lowering rates later this year– they will stay higher than the previous decade for a longer period. The higher cost of borrowing will impact many firms’ profitability and even become existential for some borrowers. 

Directors should zero in on their firms’ funding and cash flow situation. Where needed, this might take the form of a standing review by a small group of directors, robustly challenging management’s financial planning proposals and assumptions. 

5. Sustainability and its current market trends will require boards to remain diligent. As companies prepare for a growing number of sustainability-related regulatory developments, they also will have to balance the continued polarization of ESG initiatives. Conservative stakeholders are skeptical and have strengthened their voices to push back on the role of ESG in fiduciary duties. At the same time, socially responsible investors have further advanced their expectations of companies.  

Conflicting viewpoints have challenged companies' navigation of these issues, requiring boards to be attentive to ensure sustainability practices align with the broader business strategy. Many boards now require that every strategic decision be vetted for its sustainability impact. This type of vetting should also address the potential risk of pushback, a form of transition risk that seems to be getting bigger by the day.  

6. AI, meanwhile, will continue to disrupt following a year during which AI went mainstream in the public consciousness with the widespread uptake of ChatGPT by American businesses and consumers alike, the headline-grabbing coverage of Sam Altman’s ousting saga at AI pioneer OpenAI, and the recent lawsuit against the latter by Elon Musk. As AI use in business spreads, boards need to understand how their companies use these tools in client relationships, business planning, and internal workflows. More importantly, they need to develop policies on the transparency and limits of AI inputs in these areas. 

This new world might require significant time and resources to upgrade director knowledge and streamline the Board's policymaking. In turn, this will require substantial changes in the functioning of already overworked boards.  

In recent years, as hot-button issues from climate to cybersecurity have come onto board agendas, they have been met by calls to add subject-matter “experts” to the Board; oracles to whom others can turn to light the path. Such thinking against the fundamental principle of what a board should be– a collective body of seasoned decision-makers: not a mix of technical virtuosi. Instead, a successful board acts as a team in which every director contributes to deliberation and decision-making on all (or most) topics. 

While having individuals with specific expertise can be useful, what matters most is that the board has the resources and the time to inform itself about current issues and deliberate. Many best-in-class boards are developing new platforms to address these new challenges regarding their skillset. Continuing skills development, informal workshops with management and outsiders, board non-executive director “champions” who work closer with management, and board-level external advisors on various topics are increasingly re-shaping the classic board-committee organizational blueprint of the corporate summit. This is the fuel in the race among boards to meet the challenges of a radically uncertain world.