Americas board priorities 2024

Global economic activity remains subdued heading into 2024, with rising geopolitical tensions and tightening financial conditions as key risks. As the year begins, companies can expect slower business and consumer spending, along with softer labor market conditions and still-elevated costs.

Drivers of economic activity demand attention

Several drivers of economic activity will warrant greater attention from boards in this environment. These include:

• Cooling but persistent inflation: While global inflation will continue to moderate this year, the process will be gradual. Economic activity will continue to be constrained by price and cost fatigue, leading central banks to maintain a restrictive monetary policy stance. Directors are mindful of the risks. When asked about which economic factors they were most concerned about, 68% said inflation, rising costs and pricing power were top concerns.
• Interest rates likely to stay higher for longer: The end of the global monetary tightening cycle is near. Still, central bankers and investors are embracing the idea of higher interest rates lasting for a longer period. This could lead to slower economic growth for a more extended period, as the increased cost of borrowing limits restrain business executives in their investment and employment decisions.
• Labor market cooling: Though resilient, the labor market is likely to be affected by tightening financial conditions, elevated labor costs and softer demand. At the macro level, further hiring restraint, strategic resizing decisions, and continued moderation in nominal wage growth is expected. However, a severe employment pullback with broad-based layoffs and high unemployment is not expected.

Consumer spending expected to slow: Consumer spending momentum is likely to slow this year. An over-reliance on savings to finance purchases is not sustainable. Additionally, increasing pressure from elevated prices, higher interest rates, slowing income growth and, for the US, the restart of student loan repayments may further slow spending.

Economic conditions remain uncertain

Companies must navigate an ever-shifting landscape of geopolitical and economic uncertainty. To do so, they will need to build resilience and agility in their operations.

Upside risks to the economic outlook include continued labor market resilience, consumer spending strength and stronger productivity growth. Downside risks include an environment of higher inflation and weaker productivity growth that could prompt central bank officials to resume rate hikes, leading to a rapid tightening of financial conditions and making a recession more likely. Boards and management teams should exercise caution and be wary that signs of excessive demand could be seen as inflationary by policymakers and could lead to higher interest rates.

Further, alongside a host of challenging geopolitical conditions, conflict in the Middle East has emerged as a key downside risk to economic activity. Escalation of the conflict could significantly impact the global economy, with a spike in oil prices and a sharp tightening of financial conditions. 

A mantra for many leadership teams this year will be financial discipline. Growth at any cost has given way to investments that must show a clear path to profitability or value creation. Still, companies cannot afford to retrench.

A focus on financial discipline and profitability

Companies are entering the new year with a strong focus on capital conservation and cost cutting. Among directors who view capital allocation as a top priority in 2024, more than two-thirds are most concerned about capital availability. Globally, the appetite for mergers and acquisitions (M&A) has fallen to its lowest level since 2014, with only 35% of CEOs planning a business combination in the next 12 months, according to the October 2023 EY CEO pulse survey (via EY US). Further, acquisitions have become more about the fundamental value that the buyer can achieve through synergies, with revenue growth being secondary to the ability to drive cost effectiveness.

While the percentage of leaders planning M&A is higher for US CEOs (52%), the major focus is currently on joint ventures, strategic alliances and divestments. CEOs are seeking lower-risk ways to invest in innovative technologies, and are also looking to divest lagging assets, exit unprofitable markets and fund capital spending.

Despite reasons for optimism, geopolitical headwinds add uncertainty to the dealmaking market. Funding ongoing and future transformation will likely hinge on internal operational rationalization and cost-cutting initiatives rather than raising new capital.

Continue investing in long-term priorities with continued disruption on the horizon

Companies cannot afford to let financial caution prohibit necessary investments for long-term growth, such as those related to technology and sustainability. When it comes to GenAI, many companies are embracing the imperative to act now. One hundred percent of CEOs in the CEO survey (via EY US) said they are making or plan to make significant investments in GenAI, with the caveat that many remain uncertain about the direction the technology will take. This resonates with what we heard from CFOs (via EY US) during a roundtable in fall 2023. They said their companies have a number of GenAI experiments in flight but have yet to progress to defined projects with clear functional applications. Leaders challenge themselves to experiment and rethink processes instead of just plugging GenAI into existing systems. A good place to start is investing in data management and governance. Companies must have a solid data foundation to enable data analytics and artificial intelligence (AI) to drive future business growth and evolve the business model.

While sustainability is also material to long-term strength, leaders may be more susceptible to pausing those investments given current financial headwinds. The 2023 EY Global DNA of the CFO Survey found that while environmental, social and governance (ESG) and sustainability programs are among the top long-term investment priorities, they are also the most vulnerable to spending cuts to hit short-term earnings targets. Business leaders cannot afford to be short-sighted and will need to continue investing in sustainability but with an eye toward ROI and value creation. Capital strategies require a rigorous understanding of how markets will evolve and be driven by the energy transition, what that will mean for the business strategy, and what trade-offs need to be carefully navigated.

While cybersecurity and data privacy are perennial concerns for boards, they include a complex set of always-evolving drivers, and background knowledge that can quickly stale. 2023 saw a variety of different changes in the cybersecurity landscape, such as the quick adoption of new technologies, new geopolitical influences, new regulatory requirements and increasing nation-state bad actors.

Macro developments reinvigorate the focus on privacy and cyber

There are several reasons for renewed attention to cybersecurity and related concerns, including:

• New SEC disclosure rules: The new rules, which took effect mid-December 2023, require greater levels of transparency in cyber disclosures. This includes a four-day disclosure window for breaches determined to be material, enriched disclosures of the board’s role in oversight, and how risks from cyber threats may materially impact strategy or operations.
• Changing geopolitical threats: The war in Ukraine, conflict in the Middle East and US-China tensions may create conditions in which state actors seek to increase their cyber attacks on governments and industry, impacting operations and threatening data privacy.
• Rapid growth in AI and machine learning: Technologies such as GenAI create opportunities to enhance cyber defenses, but they also provide malicious actors with new capabilities to execute attacks more quickly.
• Cybercrime is increasing in volume and speed: Cybercrime is increasing across the globe and impacting organizations and their third-party networks.

Confronting a more complex cyber landscape

A more complicated environment will likely cause many organizations to mature their cybersecurity oversight through 2024. As part of this maturation, organizations may see a greater administrative burden to ensure compliance. Along with Brazil’s 2020 data protection regulations, many executives continue to prioritize data privacy. Further, a larger threat landscape that spans across an organization’s third-party network can become exceptionally complex when combined with new technology tools and techniques by which malicious actors can take advantage. Finally, although automation through AI and machine learning creates opportunities to better address many of these challenges, human error remains a prime factor in cybersecurity incidents – accounting for nearly 90%, according to several reports.

Outside of a focus on cybercrime, boards can help push management to take a more strategic approach to data privacy to build a trustworthy company by advancing the company’s privacy profile. In an era of quickly moving technology innovation, customers are increasingly aware of the privacy challenges and how their data is being used. Transparency and trust will be central to maintaining good relationships with customers, clients and regulators in an era when data misuse carries numerous risks (e.g., identity theft, brand and reputation damage, litigation, financial loss, and loss of consumer and business partner confidence). Most directors recognize this as a challenge needing a proactive response. More than half (56%) of directors who ranked cybersecurity and data privacy as a top concern in our survey cited readiness as a primary area of focus for 2024. Readiness includes breach response, recovery planning and simulations.

GenAI is only one of many emerging technologies that is already impacting business in expected and unexpected ways. Other technologies and innovations include the metaverse, Internet of Things, Web3, and quantum computing. These advancements will transform the work organizations do and the environment in which they operate.

Diverse factors drive increased oversight of innovation and emerging technology

The past year has seen enormous growth in the impact that GenAI and other emerging technologies are having on businesses. There are a number of considerations for boards to keep in mind as they oversee this fast-developing space, including:

• The rise of GenAI: The launch of ChatGPT, a GenAI chatbot, in November 2022 ushered in a wave of interest and uses of GenAI. Nearly every large technology company has a GenAI product or is working to integrate one into their platforms. The number of mentions of AI in Fortune 100 earnings calls increased fivefold in the 12 months following the ChatGPT launch.² Additionally, a flood of venture capital (VC) investments has led to a doubling of funding to AI startups in the past year.³
• The need for speed: The rapid expansion of GenAI has led to a situation in which numerous organizations are under pressure to quickly integrate it into their business models, either as a pioneer or a fast follower. As with many emerging technologies, GenAI’s appeal puts pressure on management to take advantage of its potential for strategic advantage before their competitors do, or risk falling behind.
• Moving forward responsibly: A variety of stakeholders are creating pressure to create responsible AI policies within organizations. These include governments such as the US, UK and EU, as well as many corporations and AI leaders themselves. While there appears to be significant interest in regulating AI, organizations are not waiting for governments and are starting to create their own policies and procedures to ensure responsible development and address skepticism and concern from the public.

Overseeing operational and ethical risks

Innovation and emerging technology in general, and GenAI in particular, present companies with a broad spectrum of opportunities and risks. Some of the benefits of AI are clear (e.g., enhancing customer service, streamlining workflows and simplifying work processes). However, the potential risks can be more complex. Stories of AI hallucinations and careless employees uploading critical code to chatbots abound in the popular press and have been subject to litigation. Concerns related to misinformation, impacts on democracy, implicit bias, job displacement and human rights are all coming to the forefront, and business leaders need to be aware of these issues and take appropriate measures to mitigate them.

New technologies and innovations often bring unintended consequences, unknown unknowns, and risks that have yet to be realized or imagined. Even the most transformative technologies sometimes fail to live up to the hype from their biggest supporters, suggesting that healthy skepticism is warranted in many cases.

Perhaps the most meaningful innovations will come not from the isolated application of any single emerging technology but from how they work together. It’s possible that these technologies will have compounding and networking effects.

The talent landscape is constantly being disrupted by a combination of cyclical and structural forces. This has led to a divergence in perspectives between employers and employees.

Employees are guided by their perceived power in the labor market

The power dynamics in the labor market have experienced a slight shift back toward employers amid the recent economic downturn. However, the overall perception remains that employees maintain leverage since the COVID-19 pandemic.

In our recent Work Reimagined Survey, 31% of respondents indicated they believe employees hold the balance of power. Although this percentage has decreased from the previous year’s 36%, it remains elevated compared with pre-pandemic levels of 23%. Notably, high-profile strikes across industries, from Hollywood actors to auto and health care workers, have reinforced employees’ belief in their power and willingness to exercise it.

Despite this, there is a gap between how employers and employees are perceiving this “next normal.” Employers base their decisions on the realities of high inflation, an economic slowdown and weaker market demand. Employee decisions are largely influenced by their perceived power in the labor market and their willingness to change jobs to get what they want, which includes better total rewards packages amid high inflation and cost of living, better wellbeing, flexibility and skills.

Employers may be underestimating the fluidity of the labor market. While 57% of employers believe that a more challenging economic climate would reduce employees’ likelihood of seeking new jobs, the survey found that a significant 34% of employees expressed their willingness to leave their current jobs within the next 12 months. This highlights the importance of talent availability, acquisition and retention. For directors who view talent as a top priority in 2024, 77% said these topics were most important.

Employees and employers have divergent perspectives on key talent areas

Employees and employers also have divergent views on how companies are performing across many top employee focus areas, including wellbeing, flexibility, learning and skills. According to our survey, 80% of employers believe that their organization is equipped to adapt to change and build skills for evolving needs, but fewer (58%) employees do. Similarly, 76% of employers believe that their company’s leadership is in tune with the experience of the workforce and cares about employees as people, compared with 54% of employees. Tensions between employers and employees also persist in relation to hybrid and fully remote work models.

A people-centric approach helps companies achieve better talent outcomes

Embracing a people-first mindset enables organizations to bridge these gaps, cultivate trust, invigorate their workforce and ensure readiness for the future. While technology continues to reshape the talent landscape, it is evident that superior outcomes stem from workforce strategies rooted in human-centered approaches and inclusivity.

Organizations that prioritize their people exhibit remarkably heightened productivity and a thriving culture. These organizations foster an environment where employees feel trusted, empowered, connected, well-informed, and genuinely cared for by their leaders. They value diverse workforces and actively nurture skill development aligned with the evolving landscape of generative technology and workplace transformation.

The board’s priorities for 2024 are not the only areas of risk and opportunity that boards will need to address this year. There are other business imperatives to consider in the year ahead.

Keeping pace with regulatory developments

Regulatory changes pose significant risks, and the pace of change is quickening, especially in election years in the US, Mexico and elsewhere. Companies can prepare in advance for anticipated changes, such as the expected rollout by the SEC of rulemaking governing disclosures. The SEC has finalized requirements for cybersecurity risk governance disclosures (via EY US), while disclosure rules on climate-related (via EY US) and other ESG matters (e.g., board diversity, human capital) still are pending. Boards also need to be aware that the global sustainability reporting landscape is shifting toward regulatory mandates that will impact many companies in the Americas, with examples like California’s (via EY US) climate disclosure laws, the European Union’s Corporate Sustainability Reporting Directive (via EY US), the International Sustainability Standards Board's first two disclosure standards, and Brazil’s mandating sustainability disclosures based on those standards. Policymakers are also urgently developing regulations for AI, and an evolving geopolitical landscape is driving a number of policies to which companies must adapt (e.g., US-China trade and investment restrictions). Boards can narrow management focus on relevant regulatory developments, oversee management’s actions and advocate for a harmonized global approach.

Guiding political considerations

Political risks jumped up the board agenda this year, driven by a dynamic geopolitical outlook as well as country-specific developments. Domestic and international political issues continue to pose significant risks to the operational and strategic objectives for many companies. Mexico and the US will hold presidential elections in 2024, the outcomes of which may lead to significant policy and regulatory changes domestically and impact each country’s relationship with others across the globe.

Active conflicts, such as the war in Ukraine and conflict in the Middle East, are likely to continue and will disrupt parts of global supply chains and the energy market. Further, many firms find that they must strike a delicate balance in the ways in which they support or speak out against domestic and global political events, as parts of their employee and customer bases may hold contrary beliefs. At the same time, we see two themes that are likely to dominate geopolitics. The first is a continued dispersion of geopolitical power, which is restructuring globalization into more regionalized blocs and alliances. Some of this is evident in the move some corporations have taken to nearshore supply chains closer to core markets. The second is policymakers’ prioritization of national security over pure economic considerations. This is evident in the move to more substantial industrial policy that boosts selected domestic industries or excludes international rivals. These themes are particularly relevant for multinational companies doing business in China and navigating related geopolitical complexities and restrictive investment and trade policies. Boards can guide management to proactively consider how political developments may affect growth opportunities, the supply chain, strategic options and stakeholder expectations.

Overseeing supply chains as strategic assets

Since the COVID-19 pandemic, supply chains have been increasingly viewed as strategic assets that companies can use to help achieve near-term and long-term strategic objectives. Many companies have initiated a shift away from viewing supply chains as a pure cost center to one of resiliency. Traditionally, parts of the supply chains have been viewed as discrete pillars – end customer, distribution, storage, and order management, for example. However, given the emerging strategic view of supply chains and the ability to digitally integrate end-to-end processes, many leading companies are starting to take a more holistic ecosystem approach to managing their supply chain, all while ensuring that supply can keep up with demand.

Boards can work with their management teams to govern an integrated supply chain approach from strategy to cost to resiliency. From this perspective, organizations may be able to take greater advantage of their supplier networks to help achieve strategic goals, improve resilience during crises and provide greater transparency to stakeholders.

Addressing climate change and environmental stewardship

With just six years to meet the Paris Agreement target of halving greenhouse gas emissions worldwide by 2030, swift action from companies will need to continue. Stakeholders, including investors, will closely monitor companies’ progress in meeting short-term emissions reduction targets and will also scrutinize their climate transition plans for evidence of tangible strategies. Investors are also looking beyond target setting and expect companies to transform for a new economy. This entails building resilience to different climate scenarios, conducting quantitative physical climate risk assessments and engaging in partnerships and investments to scale climate solutions. Stakeholders are also interested in how companies are identifying and addressing their dependencies and impact on biodiversity and nature.

Boards should build their competency around the material climate- and nature-related risks and opportunities across the organization’s value chain. They can challenge how these factors inform the company’s strategy and work toward integrating climate and nature considerations into decision-making processes.

Across these additional priorities, boards act as stewards of the long term and provide effective challenge to management.

Going forward in 2024: enhancing the board’s strategic value

In 2024, boards will need to enhance their strategic value by enabling resilience through discipline and transformation. They must guide management to balance short-term demands and long-term growth and support the organization as it confronts crisis and embraces opportunity.

While cyclical changes such as inflation and consumer spending require attention and may present tactical opportunities, it is structural changes such as the GenAI revolution, geopolitical fragmentation and the energy transition that are significantly impacting strategy and raising the stakes for businesses and society. Effective boards will provide valuable insights, effective challenge and leadership to enable companies to make agile decisions aligned with their values in this turbulent environment.