Shifting Corporate Governance Standards: Staying Ahead Of The Curve
Every year there is a shift in corporate governance standards, in an effort to evolve along with the rapidly changing business landscape and stay aligned with the shifting priorities of all stakeholders.
I encourage boards to kick off 2022 by evaluating these corporate governance topics:
1. ESG dominated 2021 corporate governance dialogue and will continue to be a critical topic in 2022. Boards should anticipate increased scrutiny from all stakeholders who are now weary of “greenwashing”. Greenwashing is the practice of allocating resources to market a company as more “ESG friendly” than it actually is. In 2022 I expect stakeholders will apply more pressure for companies to act on their ESG goals with transparency and clear reporting.
2. Focus on diversity and inclusivity will continue to be a priority for large institutional shareholders, regulators, customers, and employees. Black, Latino, Asian, American Indian, Alaska native, and multiracial individuals accounted for 47% of newly elected board members in 2021, up from 22% in 2020, according to Spencer Stuart.
3. 2021 saw the advent of “the great resignation” and “the war for talent”. Directors should be prepared for a significant uptick in board level discussions on human capital strategy and oversight. Boards can expect an ongoing adjustment of the relationship between employees / employers as remote work, work from home, company culture, etc. continue to evolve. As directors, we must be prepared to guide and support management as they address the factors prompting “the great resignation”.
4. Artificial Intelligence is rapidly being adopted across each functional organization and across all industries. The board must be up to speed on the current state of AI/ML and optimizing the company’s data. Consider inviting an external expert to present to the board to be sure all directors are able to thoughtfully weigh in on both the internal implementation (and potential issues) of AI/ML in their own company as well as prepare to meet emerging best practices and legislative / regulatory action surrounding AI.
5. Boards should expect an uptick in demand for a corporate “social voice” as consumers and employees are increasingly expecting corporations to take a public stand on various socioeconomic and political issues. Boards must be prepared to help guide management on when and how the company should publicly take a position. It may be difficult to strike the right balance between pressure for transparency from employees and investors while also not inadvertently offending / alienating some of your stakeholders. This is the time to consider engaging a specialized boutique PR agency that focuses in social media and can guide the company’s external messaging (when appropriate).
These hot button topics will continue to shape the way board’s function and evolve in 2022. Boards must prepare to evaluate and potentially reshape their approach as the boardroom continues to modernize.