CORPORATE GOVERNANCE
Compiled by Dona Senara
A GENERATIONAL TRANSITION
Pyumi Sumanasekara explores the evolving trends in corporate governance
Q: What should business leaders prioritise to ensure continuity in these times?
A: While organisations are navigating through the current challenges, it’s essential to focus on longer-term perspectives that ensure the longevity of the economy and businesses.
With many changes taking place, we have to focus on three areas: seizing opportunities to build a competitive advantage through sustainable products and processes; managing the transition effectively from a governance perspective; and business model design and efficiency.
It is easy for businesses to become redundant – especially given the rate at which products and services are evolving globally.
The customer experience sits alongside aspects such as environmental, social and digital transformation. Climate change consciousness is impacting regulations and taxes; and this directly impacts businesses that are trading with the international community.
Many businesses in Sri Lanka are undergoing a generational transition. A key component of our economy is run by family owned businesses and managing their transition effectively is critical for growth.
Most are founder led businesses that require structural changes in formalising the governance framework, and providing clarity to the next generation on how they will be involved as management and owners. This requires structured conversations on strategies with fresh perspectives for continued growth.
Unlike in the past, modern organisations don’t need large numbers of workers to grow. In 2012 for example, Instagram was sold to Facebook for US$ 1 billion even though it had only 13 employees.
Digital trends in terms of robotic process automation (RPA) and AI will be game changers in achieving efficiency when they’re used with the right data and in the proper context. This will bring about major efficiencies and completely new perspectives to doing business. A seemingly small change can have a monumental impact.
Q: From an environmental perspective, how would you advise businesses that are looking to incorporate sustainability into their strategies?
A: Don’t delay! Doing what’s right and profitable are no longer mutually exclusive. However, there’s a perception that being environmentally focussed, socially conscious and having the right governance practices in place are simply a ‘tick in the box.’
Gathering information from within the organisation will give leaders a fresh perspective, and help them identify new opportunities and risks. The gold standard for sustainability is to understand that it’s a profitable undertaking. It is no longer a ‘charitable spend’ or guilt free marketing tool.
Q: Could you elaborate on the regulatory changes in sustainability, as well as environmental, social and governance (ESG) practices that will affect business models?
A: We will soon see the need for International Financial Reporting Standards (IFRS) on climate related disclosure in financial statements.
However, many organisations aren’t ready for this. They will need data to understand the impact, and require capacity building and time to manage the impact of climate change on their businesses.
Upcoming regulations in the EU and other countries should concern businesses that transact with them – because the criteria will trickle down into various aspects of trade.
Enterprises will have to consider factors ranging from emissions and social practices, to using sustainable resourcing, packaging and circular practices. These regulations are expected to come into effect by October.
Organisations are increasingly acknowledging that ESG is needed to overhaul their businesses. Most at risk due to regulations are financial services, construction and infrastructure, motor (especially electric vehicles), consumer electronics, fashion and textiles, packaging and agricultural production.
Some are already showing promising circular solutions at scale and offering encouraging future sustainable business models.
To help achieve a circular and nature positive world, the notion of ‘value’ should be reappraised. This means looking beyond the traditional narrow notions of economic value such as the price of a product or brand value; it must also address natural and social capital instead, which make businesses regenerative by design.
There are many approaches to help manage ESG issues. But what’s clear is that innovation is imperative for the generation of ideas and approaches, which will enable change and have a lasting impact.
To unlock hidden potential and encourage growth, businesses should consider authentic strategies that include their stakeholders. Boards must now be bold and go beyond compliance, and seek to transform their businesses.
Q: How do you view the progress of local digital transformation and ESG?
A: There is room for growth as the digital space evolves rapidly and creates many opportunities. If artificial intelligence is used properly, it will lead to enormous efficiencies in the ESG space.
For instance, using AI for scenario testing can achieve targets such as net zero or predicting water stress for communities. This tech space is a great change maker.
