1. The focus on Boardroom diversity will continue to increase
Diversity will continue to be a priority due to increased pressure from the investors and regulators. In the US, UK Japan, India and EU gender diversity will be at forefront with increased female representation on board like never before.
2. Board Quality and Composition will be a key agenda for investors
Investors will put pressure on boards to increase quality in terms of director’s independence, industry knowledge, capital allocation skills, digital skills and experience of transformation. Institutional investors are expected to push for robust, independent, and regular board evaluation processes that may result in board evolution. Boards will need to be cautious as they consider individual tenure, director overboarding, and gender imbalance—all of which may provoke votes against the nominating committee or its chair at AGMs.
3. Sustainability will continue to be a crucial boardroom agenda
Boards should proactively embrace Environmental, Social and Governance (ESG), as this macro trend will be a critical issue to many investors. Climate change and sustainability are at the forefront of governance in many countries and many institutional investors like BlackRock, Vanguard and Fidelity have changed their voting policy on this topic.
4. New technology will be at heart of the business of the future, so directors need to be technology literate
Robotic Process Automation, Artificial Intelligence, Machine Learning, Data Analytics and Blockchain will be an integral part of business, so relevant experience at board level will be critical to understanding the risks with this digital transformation. As a result, cybersecurity will be a constant focus.
5. Boards will be under increasing fire from investors and regulatory watchdogs due to new governance codes
The new UK Corporate Governance code will apply from January 2019. In the US, Version 2.0 of the Common Sense Principles of Corporate Governance was also published. In India, the Security and Exchange Board of India (SEBI) adopted the provisions put forward by the Kotak Committee.
6. Board’s role in understanding and aligning corporate culture with business strategy will be a constant challenge
Corporate culture will be crucial as it can impact the attraction and retention of talent at the top. Alignment of values with behaviours will be critical as any misalignment can effect culture and strategy.
7. A greater push for real independence on boards will be seen this year
Independence is a state of mind, investors and governments will continue to build pressure on boards to appoint truly independent directors. Norges Bank Investment Management, the world’s largest sovereign wealth fund, has set a new standard for at least two independent directors with relevant industry experience on each of their 9,000 investee boards. In India from 2019 onwards, boards of the top 500 listed companies will need to ensure they have at least one independent female director.
8. CEO Pay Ratio should be aligned more appropriately to rewards across the wider workforce
The CEO Pay Ratio will be an area to watch out for this year. The Chartered Institute of Personnel and Development (CIPD) and High Pay Centre are calling for RemCos to ensure that CEO pay is aligned more appropriately to rewards across the wider workforce and that their contribution is measured on both financial and non-financial measures of performance. This should include measures such as employee well-being and investment in workforce training and development – all of which are crucial for good corporate governance.
9. Social Media centric Enterprise Risk Assessment will be in the spotlight
Elon Musk’s controversial tweet on considering taking Tesla private at $420 a share costed Musk and Tesla a fine $20 million each to the financial regulator. It will be critical that boards have social media policies and disclosure controls in place in 2019 to avoid reputational and financial damage.
10. Political volatility will impact corporate governance
With Brexit around the corner, and elections to be held in many countries, it will be interesting to see how boards respond to the external changes. It will not be surprising to see corporate governance treated as a political issue. The California Senate Bill on board gender diversity may be replicated in other US states. Senator Elizabeth Warren’s highly debated proposal for the federalisation of large corporations may resurface leading to massive changes in corporate governance frameworks.