Corporate governance is ever-changing, it’s important to understand the top trends in corporate governance, but it’s equally important to implement a governance framework that will evolve as the business landscape does — not fall behind. But how can businesses do that?
Crises like the COVID-19 pandemic have only emphasised the importance of future-proofing, magnifying calls for boards to further define and remain accountable to good governance practices, according to a report from Diligent.
Firstly, businesses must be vigilant to the increased scrutiny that they face today compared to yesteryear, and not stick their head in the proverbial sand. ESG pressure is only increasing, and as the SEC’s new universal proxy rules take hold, boards will likely face even more questioning from shareholders and customers alike.
Ultimately, this means that modern boards will likely have to chart their paths forward individually, toeing the line between complying with the SEC and other regulatory bodies while also meeting the expectations of their unique shareholders and customers.
Firms will have to also be wary of fickle political trends – politicians on both sides of the aisle have different opinions on ESG and, as a result, different ideas about what constitutes good governance. House Republicans, for example, believe ESG detracts from more pressing issues facing shareholders, while House Democrats say it’s important for shareholders to be informed about all possible risks.
The trend that seems to be most prevalent, is of course, the ever-prevalent talk of ESG. Organisations operating in the EU are already preparing for increased sustainability reporting. The passage of the Corporate Sustainability Reporting Directive (CSRD) will make that reporting more uniform starting in 2024, with total adoption planned for 2026.
As companies adapt to CSRD and continue the conversation around the European Sustainability Reporting Standards, boards have the opportunity to become leaders in sustainability.
Globally, stakeholders want to see a continued commitment to sustainability. But this ESG focus isn’t just a matter of reputation. The SEC may pass its Climate Disclosure Rule in 2023, a framework that is either welcomed or stress-inducing, depending on who you ask.
While that rule will likely transform the sustainability reporting landscape, waiting for it to pass may ultimately put your organisation behind the curve. Stakeholders want to see a genuine and proactive commitment to climate impact.
But issues that your corporate governance framework may face are not just solely linked with ESG. In fact, they can range from cybersecurity, to ethics, and wider issues which we can’t even comprehend.
In a bid to combat this, companies should start nurturing young talent now by considering the diverse skillsets and backgrounds that could set the company up for future success. Legal, cybersecurity, financial and data/analytics are skills most boards will need to cultivate to succeed.
Bringing your governance to maturity means enabling secure collaboration, seamless data sharing and real-time oversight into key issues ranging from ESG to cybersecurity and issues we have yet to face. Ultimately, firm’s should look to implement a flexible governance framework that can evolve, and roll with the punches of the tumultuous world that we live in. While threats cannot always be predicted, they can be prepared for.
Read the full report here.
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