The growth of emerging markets is attracting many developed-market companies looking for growth opportunities. Yet the risks companies encounter in these markets can pose major threats to success. Board directors are challenged to help their companies appropriately plan for and address the new strategic, operational, compliance-related, and political risks that international growth entails.
Directors recognize that full board and board committee oversight has to adapt in order for companies to successfully navigate growth in international markets. They are seeking education on related risks and regulatory matters including FCPA and UKBA enforcement, ensuring strategic plans and risks are examined concurrently at the board level, and adding directors with international experience to the board.
Enterprise risk management, tax reform, and the macroeconomy
Boards and audit committees face a range of challenges in maintaining mature enterprise risk management (ERM) processes, while tax reform represents a significant change as companies begin to wrestle with the implications of the Tax Cuts and Jobs Act, passed at the end of 2017. At the March 21, 2018, meeting of the Central Audit Committee Network (Central ACN) in Chicago, members and guests shared approaches to enterprise risk management (ERM) and discussed two factors affecting the current business environment: tax reform and the US macroeconomic outlook.
Emerging international risks
Audit chairs from Europe and North America reviewed the range of international threats that are hard to predict – yet significant in impact – such as political strife, economic crises, and natural disasters. They explored ways of identifying more of these risks before they materialize, noting that information from a variety of sources is critical. To prepare for the threats that remain unexpected, a company can develop general response plans and implement policies that strengthen the company for any blow it might suffer.
International risks and opportunities
Audit committee members identified a wide range of strategic, operational, financial, and compliance risks and opportunities in doing business overseas. They highlighted key factors for success in global business strategy and noted practices that have enhanced board and audit committee oversight of international issues.
Members discussed the various risks associated with governmental action (and inaction) in jurisdictions across the globe, and then focused on the risks stemming from the current struggles in the eurozone, as well as the board's role in overseeing political risk management.
Board and audit committee oversight of international opportunities and risks
Members discussed the strategic, operational, and compliance risks associated with emerging markets growth, and outlined ways that management, the board, and the audit committee help their companies capitalize on the growth opportunities and mitigate the risks in emerging markets.
Engaging with strategy after the financial crisis
Lead Director Network (LDN) members discussed how they engage with strategy in a post-crisis, globalized business environment. The focus of their renewed strategic review is often international, where the excitement concerning impressive growth opportunities is tempered by distinctive risks. Ambassador Susan Schwab, the 15th United States Trade Representative, joined the meeting as a guest.
Board and audit committee oversight of M&A
A transactions advisor noted that “It is the best of times, and also the worst of times for M&A.” Members shared practices to enhance transaction oversight before, during, and after a deal is announced.
Risk in emerging markets
The expert who coined the term "emerging markets," Antoine van Agtmael of Emerging Markets Management, discussed with audit chairs the dramatic shift towards growth in the emerging markets and implications for oversight.