Directors urged to embrace new approaches to risk, AI and climate change

AI, climate change, the economy, skills, the labour market – the latest chartered director conference covered a lot of ground. None of these are new topics but they still resonated strongly with the 90+ chartered directors who attended the day-long IoD event at the Royal Botanic Gardens, Kew. And the two keynote speakers – Dr Duncan East, CEnv FIEMA and Head of Sustainability at the conservation charity, Marwell Life, and Professor Andy Neely, OBE, FREng, FAcSS, Director of the Cambridge Service Alliance and Founder of bleeta.ai – tailored their talks to key issues facing directors today.

Climate-related risk

“Climate change is already here,” said East. “The future has arrived.” His talk was interspersed with polls, the first question being ‘Do you think your business is prepared for climate-related impacts?’ The biggest chunk (41%) said no, they are not ready, with 37% saying they are ready and 12% being unsure.

The reality is that climate-related impacts are already being felt, businesses being flooded after heavy rainfall to lost productivity and transports issues during heatwaves. “Heat is becoming an increasing problem in the UK,” said East. Heatwaves can affect business performance and productivity in several ways – increased sick days, reduced output, transport delays, cooling costs and power failures, for example.

Directors need to plan for these known risks. And just as importantly, they need to plan for unknown risks. East has personal experience of this – his organisation was flooded for the first time a few years ago due to a site construction plan based on historical data. “It looked at the last 30 years of flooding,” he said. “It didn’t look forwards.”

East said organisations need to take a different approach to risk, thinking about what could happen rather than making assumptions based on what has or hasn’t happened in the past. While historic datasets are still useful, he recommends greater use of forecasting tools and techniques – forward-looking data. And he recommends looking at business risk through a very wide lens, covering areas such as risk and impact, critical/single point of failure, supply chains, key suppliers/customers, vital infrastructure links and electricity. Should any of these fail, what would the impact be to your business?

Gen AI – business use cases

Neely also talked about our changing world, although this time the focus was on technology – gen AI. Currently on sabbatical from the University of Cambridge, Neely is taking a deep dive into the possibilities of gen AI – he’s thinking about virtual board members, for example.

He thinks gen AI will fundamentally change how organisations operate, with both positive and negative outcomes. “I am 50/50 about it – 50% is incredibly excited as I think this technology is really powerful. The other 50% is absolutely terrified. Not so much in terms of AI taking over (although there is a risk of that), but what the technology means for organisations in the future and the employment prospects of the next generation.”

Neely now uses several gen AI tools throughout the day, selecting different ones for different tasks – Beautiful.ai for slide decks, for example. “When I started lecturing, I used to take about eight hours to prepare for a one-hour lecture, now it’s about three hours.”

New applications are being developed all the time and tools are rapidly improving. “This is baby technology but the rate at which this stuff is moving is absolutely astonishing – models will just get better and better and better,” he said.

Neely posed four questions that he thinks every director needs to consider:

1. What is our strategy for AI?

2. How do we get the flywheel started?

3. How do we balance productivity and cognition?

4. How do we keep up to date?

Regarding strategy, Neely said organisations need simple, clear rules around AI and should avoid complex environments, because of the speed of innovation. “That is absolutely true,” said Richard Jenkins, chartered director and Group CEO at engineering company Rubery Owen Holdings, after hearing Neely’s talk. “It’s so fluid and fast now that we can write policy that will be out of date within a week.”

And AI needs to be aligned with business objectives and ethical principles. In terms of getting started, Neely advised early pilots – quick wins that demonstrate value and build momentum. He thinks organisations need to invest in data infrastructure and talent to build capabilities and recommended Communities of Practice to help employees explore new technologies.

Natalie Passmore, chartered director and Finance Director at Jersey Water, found Neely’s thoughts on AI very helpful. “I’m trying to encourage people to own it [AI] and understand it. It got me thinking about how we could use it more internally and tap into different ways of thinking – such as for customer perspectives and board decisions.”

Organisations need to strike the right balance between productivity and cognition, using technology to build understanding rather than as a quick fix. Neely thinks it’s important that people are encouraged to use AI as a ‘thought partner’, not as a tool that just gives answers. This is a key concern for Mark Johnson, chartered director and Director at fibre optic solutions provider, AFE Ltd. “My concern is cognitive ability, more with the people coming through to the workplace, such as apprentices and young people. There’s all the learning you have to do in the workplace to inform your choices – how will us directors manage that? You have to give your staff the ability to train themselves for the next level.”

Lastly, Neely recommended that directors stay up to date by continuously monitoring AI trends, technologies and best practice. And by having a go – “I’m learning so much just by experimenting.”

As at other chartered director events, Anna Leach, Chief Economist at the IoD, gave an overview of the current economic landscape. “UK growth seems to be improving but the outlook is mixed,” she said. Tariffs have had a significant impact on the economic landscape globally, as have other events, including the recent turmoil in the Middle East. The UK’s trade deals with the US, Europe and India have generated some positivity, but Leach said businesses have been negatively impacted by higher taxes following the Autumn Budget, as well as continuing high energy costs. “The labour market is loosening and vacancies are below pre-pandemic levels. Payroll numbers are down and the outlook for hiring is rather weak following the very significant rise in labour costs.”

Her session also involved a few interactive polls. Question one was: ‘What can the UK government do to lift business confidence?’ Answers ranged from ‘provide more support and focus on high growth potential SMEs’ to ‘no more employment taxes’ and ‘listen more’.

And when Leach asked ‘How would you score the government on creating the best environment for business in the world?’, following the launch of the government’s 10 year Industrial Strategy (https://assets.publishing.service.gov.uk/media/68595e56db8e139f95652dc6/industrial_strategy_policy_paper.pdf) (reportedly aimed at making the UK the best country to invest in anywhere in the world), the majority said they disagreed.

The IoD Balanced Scorecard for Government

On a final note, Leach and Jon Geldert, Director General of the IoD, both talked about the IoD Balanced Scorecard for Government (https://www.iod.com/news/uk-economy/iod-launches-balanced-scorecard-for-government/). This new tool has been developed as a strategic tool for assessing the UK government’s economic performance. It includes 10 KPIs (key performance indicators), such as business confidence in the economy, economic performance and ease of trade. “It is about being independent and evidence-based – a series of reflection points where we will attest where the government is on its data and our data and we hope it will add some dialogue,” said Geldert.