Leaders Also Cite Over-Reliance on Outdated Assumptions
One in three U.S. board members and executives are “very concerned” that the climate of uncertainty and volatility may pose a significant threat to their corporate strategy, and more than three in four worry that management tends to use outdated assumptions in setting strategy, according to a survey by the Board Leadership Center of KPMG LLP, the audit, tax and advisory firm.
KPMG’s latest Roundtable Series gathered over 1,200 corporate directors
and senior executives across 17 cities to share their views on the board’s role
in calibrating strategy. Thirty-two percent of those surveyed said they are
“very concerned” that management tends to use “more of the same” assumptions regarding key factors and uncertainties in setting strategy, and another 46 percent said they are “somewhat concerned.”
Survey respondents ranked economic uncertainty (61 percent), technology
and innovation (58 percent), and government regulation (57 percent) as having the most significant impact on the company’s strategy or the assumptions underlying it. Read the full report here.
“Amid this unprecedented mix of volatility and uncertainty, boards will
need to closely monitor changes in the business landscape to understand the
impact on the company’s strategy and risk profile, and help the company
recalibrate as needed,” said Dennis T. Whalen, leader of the KPMG Board
Leadership Center. “We’re clearly seeing a shift in the board’s role in strategy
away from an ‘annual review and concur with periodic involvement’ toward an
ongoing dialogue with management.”
Forty percent of those polled said that management does not create probability scenarios that focus on the critical assumptions at the core of the company’s strategy, and only 37 percent said they are “satisfied” that
management has an effective process to scan and monitor changes in the external environment regularly in order to test the continuing validity of strategy assumptions.
The survey results show that boards are taking steps to better link risk and strategy in boardroom discussions. Some 63 percent of those polled reported that their board is devoting more time to discussion of strategic risks, uncertainties and opportunities. Other actions reported include improving
information flow to the board regarding strategic risks, uncertainties, and
opportunities (58 percent); reviewing/approving risk appetite (40 percent); and hearing more third-party views (28 percent). In addition, 65 percent said their board has discussed its composition and succession planning based on the skill sets that will be most relevant to the company’s strategy in three to five years, and another 15 percent plan to do so.
Roundtable discussions highlighted the board’s evolving role in evaluating strategy options and challenging fundamental assumptions, monitoring
execution and engaging with management on an ongoing basis, and helping to connect strategy, risk, and long-term value creation.
The KPMG Board Leadership Center, which includes the Audit Committee
Institute, champions outstanding corporate governance to help drive long-term corporate value and enhance investor confidence. The Center engages with directors and business leaders to help articulate their challenges and promote continuous improvement. Drawing on insights from KPMG professionals and governance experts worldwide, the Center delivers actionable thought leadership—on risk and strategy, talent and technology, globalization and compliance, financial reporting, and more—all through a board lens. Learn more about the Center’s programs, resources, and insights for directors at KPMG.com/BLC.
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 174,000 professionals, including more than 9,000 partners, in 155 countries.