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Economic Uncertainties and Boards
By- Institute of Directors | Authored by- Lt. Gen. Surinder Nath, PVSM AVSM (Retd.)
Jan 02, 2023
The year 2022 has been anything but ordinary. The role of corporates has emerged very clearly in maintaining social and economic sustainable development in the world. The World Economic Forum, the UN Conference on Climate Change and the UN Conference on Sustainable Development have all identified the role of corporates as an important element of growth. The unnerving combination of war, inflation, energy scarcity and climate change was not expected by anyone, as business and industry was just deciding to move forward from the COVID-19 pandemic. 2022 has also proven to be a year of resilience. Experts believe that difficult times are over and the path towards sustainable and inclusive growth needs corporate boards to design and approve sustainable growth patterns that make economic sense.
World over, there have been predictions of a possible recession, following the current inflation, as witnessed across markets and geographies. India has gone through mixed reactions and has shown control of considerable inflation and recessionary trends. In 2022, India has become a global champion in an area that no one could have predicted – 'stock market performance'.
In mid-December, the Sensex was up by 7.5% since the start of 2022. The Sensex had intra-day life-high of nearly 63,600 points on December 1, 2022. However, the Sensex lost over 2,200 points, or 3.5%, on December 16, 2022. Profit-taking at higher levels by local investors, combined with erratic trading behavior of foreign investors, have affected the market digitally.
India is still an emerging-market. Many global economists have also opined this and expressed the same in global media. As is well-known, emerging markets usually suffer steeper crashes in JANUARY © Institute of Directors, India I www.iodglobal.com 2023 I DIRECTOR TODAY 09 a global economic price crash. As is the case in 2022, global investors shifted billions from emerging-markets to safe havens like the US (even though the US markets are down too). Within countries, investors have rushed out of stock markets because of a storm including high-inflation, exacerbated by the Ukraine war, “global recessionary trends” and balance of payment strains that have put some countries into loan default and put another 60 onto the risk list of IMF, and a modest but worrying resurgence in many places of COVID.
Things have been on a different platform in India, where some foreign investors withdrew a few billions from Indian markets in the earlier months of 2022, while domestic investors kept increasing their exposure in the market. In no other emerging markets are domestic investors showing such resilience under the prevailing difficult conditions. Systematic Investment Plans (SIPs) have boomed in India, providing a steady flow of savings into the stock market, month after month. Domestic Investors encouraged Foreign Investors to comeback and invest in Indian markets. They have driven Indian valuations very high because they see India having the best economic prospects. Morgan Stanley says that India will account for no less than 25% of world GDP growth in the next decade. For the first time, a major investment bank forecasts that India will become a major driver of economic growth.
Uncertainty and Opportunity
There are major issues that concern business leaders at present, and many are not sure whether they have an effective business model to deal with such issues. Generally, volatility and uncertainty come from commodity prices, terror/war, foreign exchange fluctuations and govt. policies across the globe. Reduction in demand of goods and services globally, changing political equations & consumer reactions, climate change & adverse effects of pandemic conditions; the effects of all these factors is leading to an increase in unemployment. In such volatile markets and economies, it is essential for both leaders and managers to maintain focus, balance and flexibility needed to adapt to a rapidly changing situation. In addition, they must always ensure optimizing resources and keeping costs down particularly when the company is in a downturn. Managers should be on the lookout for opportunity during uncertainty.
Strategic Prediction for 2023 and Beyond
Boards have to really take stock of all that happened during 2022, as a cue for strategic decisions in 2023 and beyond. Corporates will have to raise investments from the market, backed by strong and long-term government policies.
A review of 2022 clearly indicates that the Ukraine war was a major disruption, mainly affecting food security, energy security, and economic development. It changed mind-sets worldwide, which has affected identifying and retaining the talent pool; avoiding quitting by employees under changed circumstances; embracing Net Zero; relying on digitalization and re-skilling the workforce; and also understanding the emerging technology and their balanced use in the industry. In short, there have been challenges in converting uncertainties into opportunities.
Turning Uncertainty into an Opportunity
Boards have to reassess their present position to evaluate as to how well they are prepared to turn uncertainty into opportunity. Boards have to understand uncertainties, and match technologies to convert them into opportunities. This imperative prompts organizations to focus on the weakest link in the chain of their success – themselves. It challenges thinking and action at the same time because it recognizes uncertainty as a repository for “hope – for opportunity”. Business leaders must allow for the possibility of failure as a means of finding success that requires flexibility and willingness to let go of old ways of thinking and patterns of action.
Options for driving improvement are seldom discrete or binary. Sometimes, doing more is better; and sometimes, you need to do less. For example, companies can improve sustainability with automation and AI. Similarly, workers may want to pursue situations that offer flexibility over where or how to work even as inflation and economic downturn could threaten their job options.
Unlocking potential of creating opportunities out of uncertainties have been identified by a large number of professionals worldwide and one of them is Hybrid Work Culture which has also increased the ability to hire and bring together employees, regardless of their geographic locations. Generally, it will account for at least 30% of the investment growth by enterprises in Metaverse technologies and will re-imagine office experience by 2030.
The second most important aspect is labour volatility. Unpredictability in labour may affect an organization’s business structure and growth. Gender pay gaps may decrease attrition by 30%, resolving the issue of talent shortage. Another aspect is the growing effect of AI in businesses. It may consume more energy than the human workforce, offsetting carbon zero gains by 2025. Therefore, Business leaders will be expected to carefully apply technological developments in their business models. Cloud ecosystems may be the most transforming of all technologies. It has the potential of consolidating the vendor scale by at least 30 %, leaving customers with fewer choices. It is Cloud based systems that will dominate the future.
Boards will have to continuously focus on changing technology platforms and think in terms of how they need to become more flexible and adaptable. They will also have to strategise on technology capabilities with business strategies to drive improved outcomes and ensure preparedness in dealing with growing uncertainties. Boards will also have to build in risk factor of failures when trying to turn uncertainties into opportunities. For attaining all these, they may have to search for appropriate and skilled Directors – whether Executive Directors or Independent Directors. The Institute of Directors, IOD can effectively train and prepare man power for future boards.
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Lt. Gen. Surinder Nath, PVSM AVSM (Retd.)
President, Institute of Directors
former Chairman, UPSC
former Vice Chief of Army Staff and
former Independent Director, L&T Ltd.
He took over as the President of Institute of Directors with effect from 02 December, 2022
Owned by: Institute of Directors, India
Disclaimer: The opinions expressed in the articles/ stories are the personal opinions of the author. IOD/ Editor is not responsible for the accuracy, completeness, suitability, or validity of any information in those articles. The information, facts or opinions expressed in the articles/ speeches do not reflect the views of IOD/ Editor and IOD/ Editor does not assume any responsibility or liability for the same.
