Board Impulse Thoughts (BIT) – A little BIT for everybody

61st Board Impulse Thoughts with Semra Kuran and her views and assessments of the upcoming and last 12 months

1. Which were your biggest learnings over the past 12 months?

In the last decade, there have been tremendous changes in many areas with the acceleration of innovations in technology. Changing ways of doing business have led to the emergence of different behaviours, change in the supply demand mechanisms and a shift in all kind of relationships. It has increased the cooperation, collaboration and dependencies at the global level. The uncertainties arising from wide impact problems and the increasing contagion effect made it difficult to take decisions either at the individual or corporate level and to reach the targets set. I believe that one of the key skills to be successful in this environment is adaptation ability to changing conditions. For a successful adaptation to navigate under uncertainty, having a flexible and agile structure is also essential.

The biggest learning for the last 12 months and maybe since the pandemic began was the importance of being prepared for the unexpected. Every institution needs a scalable and efficient emergency plan that will help them to avoid business interruptions and confusion. Many companies learnt how important it was to be able to adapt quickly to change when faced with challenges on several fronts including personal well-being. This requires preparation and resilience.  

After long years spent on risk management in an emerging market those learnings from business management perspective was not new to me, but the scale that we all experienced was compelling this time.

2. How is the role of Board of Directors changing and what is the importance of diversity and inclusion in the boards?

In generally accepted governance frameworks, the board of directors’ main role is to perform the duties of strategic planning, establishing policies for management and oversight, while not only meeting the appropriate interests of its shareholders, but also relevant stakeholders. Boards provide counsel and advice to the management team, check and challenge the execution of its operations.

Boards are currently dealing with duties arising from complex regulations and compliance frameworks together with the demand for contributing to wider society. In time, regulators highlighted the roles of non-executive directors as well as the importance of independence of the board and emphasised the significance of balancing skills and experience of the board members.

The complexity of today’s world with unprecedented management challenges forces institutions to use their full capacity including boards. We see the reflection of this change in increased interactions of directors with management and directors’ time commitment to their institutions. Moreover, the directors are expected to oversee strategies with new and fast-changing business models and to ensure their organizations function with socially meaningful purpose and with diversity and inclusion. The boards now play a greater role in driving values, behaviour and culture. The competencies and capabilities of directors became a key success factor in boards’ composition to support the business in that context. Like at the executive level, board directors who embrace change and new technologies and show willingness to consider others’ ideas are also needed. Having a diverse board with a varied set of professional experiences, age, nationality, gender and educational backgrounds can help organizations to gain new perspectives and insights to serve in more impactful ways. The diversity and inclusion enables the institutions to have more effective decision making, stronger corporate governance, greater innovation, better utilisation of talent pool, improved customer satisfaction and employee engagement.

Directors with different skills, backgrounds and experiences that will also impact their thinking paths even risk preferences and behaviours are expected to foster creativity, they will approach problems from a greater range of perspectives, raise challenging questions and debate more. This diversity may lead for a better understanding of stakeholders, provide diverse connections with the external environment for better governance.

3. What are your observations on executives and board members over the last 12 months, did they change their habits and attitudes?

We observe more systemic crises and shocks, ranging from financial crises and political conflicts to natural disasters, the impact of climate change and pandemics and the combination of risks which were previously considered as independent.

As a response to those shocks and changing conditions in the economic context, technological transformation, environmental constraints, new and improved ways of working emerged that may outlast the pandemic. Boards play a crucial role in providing oversight of their company’s ability to respond and recover.

The complexity of issues that companies dealt with in the last 3 years required more collaboration and decisiveness. The cohesion and solidarity between the board and the executive team was important more than ever to deal with the rapidly changing environment and complex, high-stakes decisions.

During the crisis period, the Board’s role is to support management in putting people first, securing the health and safety of employees and other stakeholders, supporting critical functions and operations for business continuity, and providing oversight of financial risks and resilience while securing stakeholder interests and managing potential conflict between company and shareholder interests. After this period, boards should be engaging with management to explore recovery options, changes to strategy and business models that might be needed, and opportunities to improve operational, cultural, financial and technical resilience in future in line with its long-term value creation role.

In this volatile environment the board of directors provided critically needed guidance in their organisation by adapting decision-making processes in line with the priorities and shared their crisis-management experience.

One of the good example of support from board to management during the peak of the crisis was putting the analysis of its performance aside. Especially the health of employees and other stakeholders came first.

Since the pandemic started, the boards focused more on corporate resilience. Previously innovation and growth strategies were top on the agendas. The boards dedicated more time to perform their duties compared to previous years. Frequency of interaction between the Boards and the management teams increased. They also set flexible and agile approach to agenda setting, which helped boards to evaluate emerging topics timely.

Both the board and management improved their decision taking processes by thinking the unthinkable and using more reliable and effective scenario analyses frameworks, business continuity plans and lessons learned sessions.

During crises, time to time boards overloaded management with so many demands that slowed down the decision process. The boards should ensure that the management focus to be on the right issues rather than unnecessary work. An adequate and clean division of responsibilities between the boards and the management teams are also ensured to work efficiently, in time.

Going forward I expect the continuation of that high-level collaboration between the board and the management teams with the corporate resilience focus. Strategies will be revisited more frequently to incorporate new and emerging risks; alternative strategies to be assessed more based on scenarios.

4. What do you expect from 2023 within the context of your sector and country/geography?

The current economic and political outlook and uncertainties, increasing inflation and high level of interest rates are strong threats for economies worldwide in 2023. The potential for a mild recession or stagflation in certain economies will stay high. Potential economic slowdown could weigh on consumers’ appetite for spending. Regulatory pressures as a response to crises and complexity in execution of regulations, impact of radical innovations, technological and geopolitical shifts have a great potential to alter the developments in the financial sector. On the other hand, demand for digital assets, evolvement of decentralised finance structures and the critical need for sustainable finance are other key drivers that will shape the near future and the positions of banks and non-banks.

To manage all those dynamics, adapting themselves more to digital world successfully while taking the advantage of opportunities that the new era offers the banks will use data and technology more with real-time services and collaborate in many ways with other stakeholders instead of competing. Well-capitalized, diversified banks are advantageous in the short run. Banking sector in general need to manage their talent base better, be agile and creative in income generation to cope with increasing costs. Having said that over the long term, banks will need to generate new sources of value beyond today’s boundaries. Accelerating digitization will remain key to unlocking future sources of value.

Climate change is the most critical global challenge today and maybe as disruptive as digital transformation. At the same time it brings a massive opportunity for banks to mobilize finance for transition to net-zero as well as risks to manage carefully. Banks prioritised their activities in line with their responsibilities to stakeholders accordingly.

For Turkey, in 2023 global macroeconomic outlook, especially EU’s economic performance is so critical considering close relations. Ongoing monetary tightening, recession expectations and the continuation of high energy prices together with high inflation impacted Turkish economy. The expectations for the growth rate for 2023 are low. Turkish banking sector is able to support the growth of the country with its adequate capital levels and asset quality. Turkish banks are closely engaged with the global banking sector agenda. People and risk management are top areas of focus. The change in regulations were quite heavy in 2022. Compliance with regulations will continue to be an important agenda item. The financial sector has made rapid progress in digitalization in recent period and customer acquisition as well as products and transactions have become digital. Investments in this area will keep its pace. Sustainability efforts are also prioritised in the sector. Number of banks that are committed to responsible banking principles are increasing. I expect growth both in number and volume of sustainable finance transactions in 2023.

Semra Kuran has 26 years banking experience in several roles starting from transformation project manager to board member in major multinational financial institutions in Turkey. She holds a BS in Civil Engineering from Middle East Technical University and MS in Banking and Finance from Bilgi University. She is a coach and mentor, supporting woman professionals and students in various NGOs on a voluntary basis. She is married and has two sons. Semra is a Board Member at ING-Turkey (Independent Non-Exec.); ING Leasing; ING Securities, Chairwoman of Audit Committee at ING-Turkey, Board Member at Finance Executives’ Foundation of Turkey and a Member of ARYA Woman Investment Platform.