Corporate Governance Trends to Follow in 2021
Corporate governance is a vital aspect as it defines business relationships between key stakeholders. It also influences the objectives of a business, the way risks are monitored, and how performance is optimized.
Without strong and effective governance, an organization’s culture may lack integrity. This, in turn, hinders performance and the sustainability of a business.
Corporate governance further maximizes the accountability of all individuals, especially as it reduces mistakes. Its effects can also be seen outside as it indicates an organization is well managed and aligned with external stakeholders. Therefore, such an organization has a strong competitive advantage.
For corporate governance to be truly effective, it needs to change and adapt to current challenges. For instance, it changed after the pandemic to focus more on stakeholders and how business and society intersect.
To help you stay one step ahead, here are corporate governance trends you should consider in 2021.
Shift of Corporate Governance to Deliberative Decision Making
Decision making at the Board level has become more complicated in the previous year. It was difficult to ensure the process follows general rules set before the pandemic.
As a result, many organizations had trouble maximizing shareholder value. Especially when faced with urgent decisions such as investing in employee health or converting their production lines to meet current pressing needs.
As these decisions took priority, many decisions that were taken pre-crisis left organizations strapped for cash or facing debts.
With this in mind, organizations are spending more time deliberating before making decisions. That way, they can deal with novel issues which they did not have a policy for beforehand. This approach further allows them to be better prepared for uncertainties and increasing scrutiny from different audiences.
Steady Growth of Sustainable Investing
According to S&P Global Ratings’ “Six Key Corporate Governance Trends For 2021”, one of the corporate governance trends to look out for is an increasing pressure to become more ESG competent.
Environmental, Social and Governance (ESG) metrics are important for long term investors. They are also financially beneficial for companies deploying ESG investing strategies. These, in addition to market-driven and regulatory developments, are accelerating ESG reporting.
Therefore, organizations need to effectively integrate ESG into their business strategy and enterprise risk management (ERM). Only then can they effectively ensure the sustainability of their business models in the long term.
Moreover, with ESG communications and reporting, the Board can provide stakeholders with an idea of how their organization is delivering and protecting value.
Integration of Virtual Meetings in Corporate Governance
Virtual meetings are the most practiced trend in 2020 and are still preferred by majority of shareholders in 2021, across the world.
Going with the flow, the Board has also shifted from in-person meetings to virtual ones. As they adapted to life in a virtual environment, detailed policies were created to support a permanent shift from physical to virtual communication platforms.
Moreover, hybrid meetups are also in demand by corporates as they make it easier and feasible for all members to mark their presence. Companies where this is an option will utilize the combined in-person and virtual shareholder meetings.
Recognition of Human Capital for Driving Long-term Value
The year 2020 highlighted the need to include workforce management in the strategy that boards must oversee. A new environment is required where human health and wellness play a central role in operations, and technologies are leveraged for speed and innovation.
To best meet this change, organizations are upskilling and reskilling their workforces with the future in mind. For that, they have taken important steps such as balancing the workforce portfolio for optimized employee functionality.
Due to this trend, the chief human resources officer (CHRO) will become a central Board resource. They will review the metrics for human capital and culture intelligence. Moreover, they will communicate the employee perspective to the Board.
Larger Role of Corporate Governance in Overseeing Resiliency
Board members are more involved with management to ensure the incorporation of resilience across an organization. That is why they require regular updates on changes to scenario plans, stress testing, and contingency planning.
Through the scenario plans and stress tests, the Board will gain insight into liquidity needs and the organization’s financial stability. The Board will then make better decisions towards improving supply chains and adding flexibility in operating models.
As Boards are more proactive, they should be able to anticipate change and address risks and opportunities presented by trends. Having enterprise risk management (ERM) processes and controls will be quite helpful in this regard.
So, Which of These Corporate Governance Trends Will You Use?
If you have already tried one of these, please share your insight in the comments below. We would also appreciate hearing about any trends you think the Board should implement in 2021.
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