The current economic climate is demanding more of management. Boards need to look to non-executive directors for guidance on handling these challenges, while thinking about taking opportunities.

The final quarter of 2022 is seeing business squeezed by challenges in both supply and demand, and it looks likely that the UK will slip into recession by the end of the year.

Retail and consumer goods, including food and beverages, have been more directly impacted by problems in the supply chain, but pain is apparent across the market. Anyone shipping in products is being buffeted by high container costs, China’s ‘zero-COVID-19’ policy, the war in Ukraine, and fluctuations in the exchange rate. And everyone is having to deal with continued inflationary pressures on pricing.

 

The cost-of-living crisis, high energy prices and interest rates are forcing consumers to reduce discretionary spending as they prioritise soaring bills. As Grant Thornton’s cut-back economy report shows, not everyone is feeling these costs yet, so the ramifications of this for the economy are only likely to increase as more and more people are gripped by it.

To effectively help executive management handle these pressures, NEDs need a clear understanding of what they can do and where they can add value.

 

The non-executive director’s view  

As boards become more preoccupied by day-to-day management, NEDs should be asking questions about the long term: what’s our plan for the next year or 18 months? How much have we stress-tested our financial models? Have we considered every potential opportunity?

The first question may be much simpler: are we still getting the basics right?

Optimising the quality of products or client services can be the difference in how well businesses fare through this time. It’s easy to lose sight of this when you’re stuck in the long grass, so it’s NEDs’ role to ensure management is still focused on the core operating model.

Sometimes, board meetings can become dominated by the day-to-day running of a business. A key conversation is whether that’s the best use of your time? Are you always bringing a non-executive director-view to the table or is the minutiae distracting you from adding value? If management is focused on overpreparing for the meeting to impress you, they’re not going to receive the full benefit of your perspective. Getting the balance right means being comfortable enough with your governance role that you understand everything that’s going on while also bringing challenge and focus on strategy.

As a NED, your distinct value is your breadth of experience, both from your current and/or previous executive roles and other boards you sit on. If you’re working with multiple companies and you see one straying into a problem that another is encountering, or resolving, then this can be shared. You will leverage your observations across your portfolio of roles to cross-pollinate ideas and successes and highlight threats and weaknesses.

 

The other side of economic change 

It may not always feel like it, but all economic change brings opportunities.

NEDs can help their boards move from asking ”how do we manage the current environment” to “how can we find opportunities”? For example, would a company you’re working with be able to take advantage of an accelerated or distressed sale of a competitor, or interesting target? Does your board know what a good target would look like? Do management have a plan to finance action in a stress situation and can they mobilise fast enough?

The priority for NEDs during this time is the same for businesses: get the basics right, ensure you’re prepared for pressure and spaces to grow. Your independence from management, experience and expertise can make the difference in how successfully businesses navigate this landscape.

 

Written by Nicola A Sartori, Partner Corporate Finance at Grant Thornton.

 

 

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