The tumultuous first few years of this decade have left an indelible mark on the corporate world, prompting boards of directors to revisit and rethink their governance strategies. The COVID-19 pandemic, alongside fluctuating stock markets, low-interest rates, social justice concerns, and growing consciousness about environmental sustainability, have necessitated changes in "Corporate Governance."
Trust in Business: The New Norm
Against a backdrop of socio-economic uncertainty, the Edelman Trust Barometer reflects an interesting shift in public sentiment - businesses have overtaken NGOs, governments, and media as the most trusted institution. The changing public expectations have prompted businesses to involve themselves more significantly in social issues, advocating for social justice and driving efforts to combat climate change.
These transformations aren't merely superficial or fleeting - they're permeating businesses from their employee base to the executive suite and up to the boardroom, thus necessitating a new playbook for corporate governance.
The Changing Dynamics of Corporate Governance
Despite their reputation for being resistant to change, boards of directors are realizing the necessity to adapt and innovate. In light of the changing world, directors are seeing the importance of fostering a culture of diversity, inclusion, and belonging.
From an economic standpoint, directors recognize a strong link between the company's core strategy and Environmental, Social, and Governance (ESG) aspects. As the global workforce returns to offices, businesses are actively planning for the future of work. The role of directors is becoming pivotal in shaping these decisions, helping develop robust workforce strategies and talent management plans for a challenging future.
The Need for Change: Insights from the 2021 Annual Corporate Directors Survey
The Annual Corporate Directors Survey provides a detailed analysis of the evolving nature of corporate governance. Here, we outline six primary areas of focus that are calling for board attention:
1. ESG Oversight
Our survey reveals that ESG is the top issue shareholders wish to discuss with directors. However, only a quarter of directors assert that their board understands ESG risks very well. It underlines a pressing need for director education and a more substantial focus on ESG in board discussions.
2. Connecting ESG to Company Strategy
For a successful ESG strategy, it's crucial to embed these long-term considerations into the company's core strategy. A strategic move could be linking executive compensation to non-financial metrics, an idea that is gaining traction among directors.
3. Prioritizing Talent Management and the Future of Work
The pandemic has forced a radical reimagining of the workplace, making talent management oversight and the future of work central to corporate strategy. Boards need to consider how their companies are differentiating themselves to attract top talent and foster greater diversity and inclusion.
4. Tackling Board Diversity
Board diversity is a growing concern that can no longer be overlooked. Directors now understand the importance of setting diversity goals and creating internal succession plans to achieve a more diverse and inclusive board.
5. Focusing on Board Assessments
Almost half of the directors (47%) believe that one or more of their fellow board members should be replaced. This necessitates regular individual director assessments to identify areas for improvement and ensure an optimally functioning board.
6. Re-examining Board Priorities
The survey highlights talent management as a top priority, requiring more time and attention. However, there is a wide range of other priorities. Therefore, boards need to reach a consensus on their focal points moving forward.
Corporate Governance: The Way Forward
In a rapidly changing world, the role of corporate governance is pivotal in steering businesses towards stability and success. The insights from the 2021 Annual Corporate Directors Survey shed light on the ongoing changes in boardrooms and the new strategies being adopted to navigate the challenges. As we forge ahead, it's clear that a flexible and forward-thinking approach to corporate governance will be the key to resilience and growth.
Our Directors’ Institute- World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out in an efficient manner helping you to make a significant contribution to the board and raise corporate governance standards within the organization.