Julia Chirkova
Audit committees and boards are in a constant state of evolution, meticulously evaluating the multifaceted impacts of tax policies, international trade agreements, and intricate supply chains, alongside the accelerating advancements in technology, the urgent demands of climate action, and the strategic imperatives of workforce development. The contemporary economic climate, characterized by its nuanced complexities, is unfolding against a backdrop of a rapidly shifting business landscape, profoundly influenced by legislative changes, regulatory shifts, and dynamic geopolitical forces. These overarching factors, when compounded by the escalating convergence of cyber risks, the disruptive potential of artificial intelligence (AI), and persistent economic volatility, are now firmly established as critical items on board agendas worldwide.
The current business environment compels organizations to navigate an increasingly complex array of nonlinear risk events. These events possess the inherent capability to trigger sudden, unanticipated tipping points, necessitating swift and decisive responses. Despite the velocity at which these risks surface and challenge corporate agility, management must maintain a keen awareness of the interconnectedness of these issues and their potential downstream consequences. This necessitates a proactive and integrated approach to risk management, moving beyond siloed considerations to embrace a holistic understanding of the enterprise.
The Strategic Imperative: Integrating Risk and Strategy
Leading boards are actively re-evaluating traditional approaches, seeking to more tightly intertwine the principles of risk management with overarching business strategy. Their audit committees, in addition to receiving routine updates on identified risks, are increasingly adopting a portfolio-driven perspective. This involves sophisticated scenario analysis to inform their strategic counsel and oversight. The objective is to foster a more dynamic and forward-looking risk governance framework, one that can anticipate and adapt to emerging threats and opportunities.
Furthermore, these progressive boards are challenging their management teams to revitalize risk management programs. This entails moving beyond periodic, static updates to embrace a portfolio-driven approach that actively explores "what-if" scenarios. This proactive methodology allows boards to not only identify potential vulnerabilities but also to consider the proactive measures and strategic advantages that can be leveraged. In essence, boards are asking not just "what are the risks?" but also, "what can we leverage to be more prepared and to seize opportunities?" This dual focus on risk mitigation and opportunity enablement is becoming a hallmark of effective corporate governance.
Audit Committee Deep Dive: Enhancing Risk Mitigation and Enterprise Resilience
Audit committees, typically vested with oversight of risk-related matters, are intensifying their scrutiny of the status and efficacy of risk mitigation plans. This deeper engagement enables them to scrutinize other enterprise risk management (ERM) practices and processes, thereby verifying that robust risk management is embedded throughout the organization. The ultimate goal is to enhance enterprise-wide resilience and agility, which are crucial for enabling strategic pivots in response to market shifts and unforeseen challenges.
CEO Outlook: Optimism Tempered by Transformation Imperatives
Amidst mixed signals regarding the 2026 business outlook, a recent EY CEO survey revealed a compelling trend: 52% of CEOs plan to increase investments specifically to drive transformation initiatives. Their focus is squarely on refining business models, exploring new market entries, and accelerating the adoption of emerging technologies to secure sustainable competitive advantages. These ambitious investment plans suggest a burgeoning sense of optimism, fueled by a stronger confidence in corporate earnings and profitability. This confidence is further bolstered by the demonstrated ability of CEOs to effectively navigate complex global challenges.
However, this optimism is not without its strategic considerations. Many companies are simultaneously adjusting their operating models to achieve ambitious financial targets, with a clear understanding that vigilance is required across five critical risk categories:
- Technology Disruption and AI Integration: The rapid evolution of technology, particularly the pervasive influence of AI, presents both immense opportunities and significant risks that demand careful management.
- Labor Costs and Talent Constraints: Rising labor costs and the ongoing challenge of attracting and retaining skilled talent continue to exert pressure on organizational budgets and operational capacity.
- Capacity for Innovation and Supporting Infrastructure: The ability to innovate is paramount, but it requires substantial investment in research and development, as well as the underlying infrastructure to support these efforts.
- Geopolitical Tensions: The volatile geopolitical landscape introduces uncertainty and can disrupt international trade, supply chains, and market access.
- Supply Chain and Logistics Considerations: The fragility of global supply chains, exposed by recent events, necessitates a strategic reassessment of resilience, efficiency, and diversification.
The AI Revolution: Boards Elevate Oversight
Artificial intelligence, a technology that increasingly appeared as a risk factor in the 2025 proxy statements and Form 10-K filings of Fortune 100 companies, is now commanding elevated oversight from boards and audit committees. An analysis by EY found that nearly half (48%) of these companies explicitly cited AI as part of the board’s risk oversight responsibilities—a threefold increase from the previous year. This heightened attention underscores the profound impact AI is expected to have on business operations, competitive landscapes, and risk profiles. Concurrently, a majority of companies (58%) are proactively undertaking cyber preparedness exercises, acknowledging the amplified cyber risk environment.
Reshaping Supply Chains: The Hybrid Approach to Global Resilience
In response to escalating risks and the inevitability of change, leading companies are actively re-engineering their supply chains. The focus is on enhancing speed, bolstering resilience, and optimizing customer service. Many are adopting a hybrid approach, seeking to balance the benefits of global scale with the advantages of regional agility. This strategy acknowledges that full localization can be impractical, prohibitively expensive, or simply unnecessary in certain contexts. The EY survey indicates that nearly 75% of participating CEOs are either in the process of localizing or have already localized a portion of their production within the country of sale, signaling a significant trend towards nearshoring and regionalized manufacturing.
This strategic shift involves building local and regional capabilities closer to customers, communities, and talent pools. This proximity facilitates faster adaptation to diverging government regulations and dynamic market conditions. As CEOs navigate the priorities of various national administrations, including those in the United States, there is a growing emphasis on U.S.-based investment and job creation. These considerations are increasingly central to discussions surrounding trade, regulatory policy, and other critical matters. Furthermore, many view U.S.-focused localization as a strategic lever for balancing operational efficiency with enhanced security.
Actionable Strategies for Board and Audit Committee Effectiveness
For boards and audit committees aiming to enhance their effectiveness in the current complex business environment, several proactive steps can be considered:
- Regular Portfolio Resilience Reviews: Conducting periodic and comprehensive reviews of the company’s overall resilience across its various business units and operational areas.
- Enhanced Focus on Shifting Customer Demand and Emerging Technologies: Directing increased attention to the dynamic shifts in customer preferences and the transformative potential of emerging technologies.
- Resource Redirection to High-Growth Opportunities: Strategically reallocating resources towards business opportunities that demonstrate significant growth potential.
- Devising Region-Specific Strategies: Developing tailored strategies that account for the unique regulatory, economic, and cultural nuances of different geographic regions.
- Scenario Analysis and War-Gaming: Employing rigorous scenario analysis and war-gaming exercises to enhance preparedness and strategic agility. The insights gained from these exercises can help boards and management anticipate and proactively manage interconnected risks that could pose a substantial shock to the company’s portfolio.
Peering Around Corners: Understanding Integrated Risks and Strategic Assumptions
In guiding companies through the inherent risks of an uncertain business environment, audit committees must possess a clear understanding of where risks are concentrated and whether top-tier risks and key strategic dimensions are being effectively integrated into broader board discussions. Crucially, understanding the underlying risks, assumptions, and critical factors that underpin the company’s strategy, and how these fare under robust, forward-looking stress testing, is of paramount importance. This is particularly valuable when scenario analysis illuminates potential "single points of failure."
The Crucial Role of Boardroom Technology Fluency and AI Governance
A critical element for effective board oversight is understanding the level of technology fluency within the boardroom itself, as well as the quality of the leadership team’s expertise in relation to technology. This involves assessing the enterprise-wide technology maturity of the company and evaluating how the board is actively overseeing the governance of artificial intelligence.
Further analysis of Fortune 100 proxy filings and Form 10-K forms revealed that approximately 40% of companies disclosed that at least one board-level committee was specifically charged with AI oversight responsibilities. This figure represents a nearly fourfold increase in such disclosures compared to 2024, underscoring the rapid ascent of AI as a governance priority. Audit committees, meanwhile, continue to be the primary locus for cybersecurity oversight, reflecting the persistent and evolving nature of cyber threats.
Measuring AI’s Business Impact and Addressing Workforce Concerns
Recognizing the inherent risks associated with both capturing opportunities and achieving efficiencies, the committee responsible for overseeing these risks—whether it is the audit committee or another designated board committee—along with the full board, should proactively inquire about how management measures and reports the business impact of AI. This reporting should clearly demonstrate how AI initiatives support and advance overarching business strategy.
Key questions for management to address include:
- What is the company’s talent strategy specifically as it relates to the integration and utilization of AI?
- Is the workforce receiving the necessary training and development to adapt to AI-driven changes?
- What are the prevailing sentiments within the workforce regarding AI? Is there anxiety, and if so, how is it being addressed?
- How is the integration of AI within the workforce being managed, particularly in relation to core operational functions?
These are among the myriad of critical considerations that audit committees and other board members must thoughtfully address as they navigate another year of continuous change and strive to capitalize on emerging opportunities. The dynamic interplay of technological advancement, economic volatility, and geopolitical shifts demands a strategic and agile approach to governance, ensuring that organizations are not only resilient but also positioned for sustained success in an ever-evolving global landscape.
This article was authored by Pat Niemann, EY Americas Center for Board Matters and Audit Committee Forum Leader. The views expressed herein are those of the author and do not necessarily reflect the official positions of Ernst & Young LLP or any other member of the global EY organization.
