Company boards appear to be adopting a more optimistic outlook for growth and competitiveness in the short to medium term compared to the recent past according to the first edition of the Deloitte Survey “EMEA 360° Boardroom Survey: Agenda priorities across the region.”
The survey highlights the views of 271 non-executive directors across 20 countries in EMEA, including Romania, providing a unique perspective on the issues boards of directors in the region are currently facing. The study focuses specifically on six aspects of corporate governance: strategy and risk; innovation; cyber security; remuneration of senior executives; boardroom succession and talent; and board performance and evaluation.
“In Romania, the key issues of the boards over the past 12 months have been the organisation structure, the board effectiveness and the operational management,” said Zeno Caprariu, Director Deloitte Romania. “Corruption is also featured highly and is expected to remain high in the future. The key issues for the next 12-24 months are risk management, governance and strategy. Cost reduction continues to be an important matter on the boardroom agendas for the forthcoming period.”
Growing relevance of cyber security
According to the survey, cyber security has become a far more important issue for non-executive directors in EMEA, ranking it far higher on their agenda for the next 12-24 months in comparison to the past year.
When asked to rate board awareness of cyber risks on a scale of 1 to 5 (with 1 being low awareness), 48% gave a high rating, while 20 % gave a low one (1 or 2). Despite its importance, less than half of respondents said that their organisation currently had an action plan in place to deal with cyber security: Just 5% said they currently had nominated a board member as the cyber security expert with the remainder either believing that this was a matter for collective board responsibility or that management dealt with it.
The emergence of cyber security as a significant problem may be due partly to its visibility in media reports and the threat to reputational risk for companies that become the victim of a successful cyber attack. Unauthorised access to personal data also creates risks for companies, particularly in banking and in countries where there is political turmoil.
There are however notable differences between industries; among the respondents within manufacturing industry, cyber security ranks high on the board agenda for only 38%. In the life sciences sector, although half of respondents indicated a high level of awareness, 33% gave it a low ranking. In view of the fact that most production processes are dependent on IT systems, this relatively low level of interest is alarming.
“As the number of cyber crimes and technology security breaches in large organizations is increasing, there is a growing awareness of digitisation and cyber security in the boardrooms,” Caprariu said.
Innovation gains in importance
The results of the survey show that innovation is high up the board‘s agenda with 60% rating it a 4 or 5 (on a scale of 1 to 5, with 5 the highest). However, there are significant differences between countries and industries: in Germany, Ireland and Italy, where there is a clear government-led drive for innovation and a well-established start-up and entrepreneurial culture, innovation features highly on boardroom agendas. It is also prominent in the life sciences & technology, media and telecommunications industries, but less so in construction and energy and resources. The proportion of respondents indicating a low priority for innovation on the boardroom agenda was relatively high in Austria, Romania, South Africa and Switzerland.
“According to our survey, although boards have identified innovation as a priority, embedding an awareness of the importance of innovation into the organisations’ culture appears to be a more difficult and lengthy process,” Caprariu said.
Product innovation was the area receiving the most attention of the board members (63%), followed by business model innovation with 49%. Digital innovation is also an important component of many organisations’ innovation plans (47%). Only 9% of respondents said that their organisation did not have an innovation plan, and a further 6% indicated that an innovation plan was still in the process of development. Many of these responses came from interviewees in Austria, Romania and the Middle East.
Digitisation on the rise
Digitisation has also become much more important which can be explained by its remarkably broad and ever increasing reach. Data analytics, the Internet of Things, robotics and other innovations are new technological possibilities that affect all industries. New digital competitors are emerging to challenge incumbents in many traditional sectors. This combination is of enormous strategic significance for companies and should therefore be expected to feature highly on the board’s agenda.
“Digitisation and its potential disruptive effects on businesses is an increasingly important topic for the board members and, consequently, ranked highly on their agenda for the forthcoming period,” according to Caprariu.
When asked about the future skills requirements for the board, knowledge of the industry (74%) and factors relating to the future development goals of the organisation were among the most prominent indications of the interviewees. While skill requirements are at the discretion of the board, other criteria for boardroom diversity may be imposed by legal requirements or corporate governance code guidelines (particularly in relation to gender). When asked about the criteria used to select board members, 70% of the respondents identified professional qualifications, 55% gender and 45% internationalisation of the organisation and its board membership.
“In Romania, gender diversity appears to not be a significant factor in board appointments. However, we noted that gender is a more significant factor in those countries where there are legal requirements for gender diversity, or where strong measures have been taken to promote gender diversity in public companies,” Caprariu said.
Success factors for an effective board
In general an effective board can only be built after very careful consideration of various factors: the acquired knowledge of individuals, their character and their ability to maximise their strengths in combination with those of other board members, creating something which is greater than the sum of its parts. The respondents ranked their top requirements for an effective board: 32% experience, 28% diversity, 23% knowledge, 22% strategy focused and 22% transparency. “Experience, knowledge and strategy focus are the key factors for an effective board in Romania,” concluded Caprariu.
The interviews for the Survey were conducted during February and March 2016. The report incorporates quantitative and qualitative data based on these interviews. For more information on the report please see http://www2.deloitte.com/ro/en/pages/about-deloitte/articles/Deloitte-EMEA-360-Boardroom-Survey-Agenda-priorities-across-the-region.
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