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Top Trends in Boardroom and Corporate Governance

Trend in Boardroom and Corporate governance

Mar 15

With sweeping changes in the US political landscape, an influx of data security breaches, and an impressive turnover of notable CEOs across industries in the last year alone, it was no surprise that executive boards are increasingly focused on issues of corporate responsibility, consumer relationships, transparency, and cyber-security.

Below are some top trends in board management and corporate governance in 2018, ranging from shifts in internal management to change in strategy towards external pressures.

Greater Diversity Within the Board

First, we are seeing a much larger focus on improving the composition of the board of directors itself.  Gender diversity has become so important that many investors will actively boycott boards with fewer than two female members. According to a review by Russell Reynolds Associates, during 2017 institutional investor State Street Global Advisors (SSGA) “voted against the reelection of directors at about 400 companies due to their failure to address the gender diversity deficit on their boards… In 2019, Glass Lewis will also start recommending investors vote against the nominating committee chairs of companies with no female directors.” Prudent boards of directors have started to implement measures that range from company audits to active enlistment of female directors and members of other diverse backgrounds.

Increased Focus on Expertise and Education

According to NACP’s 2017-2018 Public Company Governance Survey, 58% of respondents identified significant industry change as a key trend [affecting board management], including technology disruption, industry consolidation, and shifting regulations. Due to these challenges, boards of directors need more highly skilled members with industry-specific expertise, and the search for top-tier talent has led many boards to enlist staffing companies in the hiring process. Likewise, board members have also started to demand more education and mentorship opportunities as part of their service. Overall boards must work towards creating a true “learning organization” that deftly adapts to legislative, regulatory, social, and technological changes.

Enhanced Risk Assessment and CEO Succession Planning

Thanks to a rapid increase in the overhaul of high profile executives, as well as devastating events such as security leaks, organizations are beginning to place a greater focus on CEO succession planning and general risk assessment. According to the NACD’s 2017-2018 Public Company Governance Survey, “over half of director respondents (58%) reported that a critical priority for board improvement for the following 12 months was CEO succession planning, up from 47% in 2016.  Discussion of succession planning with investors increased substantially from 8% of respondents in 2016 to 19% in 2017.” These measures also reflect a general shift in board governance from day-to-day maintenance to long-term growth and sustainability.

Heightened Focus on Consumer Satisfaction

“The customer is always right” is truer than ever, and consumers have begun to demand not just a service, but an experience. Organizations are beginning to take a more proactive approach to meeting customers’ demands for customization and convenience with new technology and communication methods, and boards must be a step ahead with strategy.

In addition to higher levels of customer service, consumers are demanding a greater level of corporate responsibility. They want to see that an organization takes measures to protect the environment and stands behind causes they care about. In fact, they want to see not only that the company holds itself to ethical standards, but that it does so in meaningful ways.

Deeper Commitment to Transparency

With the influx of data breaches, CEO misconduct, and other questionable corporate practices, the public demands a higher level of transparency about the workings of the organization, sometimes down to such details as executive compensation and benefit disparities within the organization.  Consumers want to know that they can trust a company on a structural and a personal level, and the increasing importance of social media in marketing and corporate communication has further solidified this relationship. Boards are making greater strides to increasing transparency but must still mitigate the risks of sharing sensitive information.

Improvements in Cyber-Security

Cyber-security continues to be a top concern for organizations and their boards. Each year sensitive information is gathered, and more opportunities for improvement arise. According to the NACD, “boards appear to lack confidence in their companies’ ability to address cyber-security risk. Thirty-seven percent of board respondents were “confident or very confident” that their companies were “properly secured against a cyber attack,” down from 42% [in 2016], while 60% were slightly or moderately confident.” This concern has caused some boards to enlist special digital and cyber risk resources in addition to or alongside risk or audit committees.

In summary

Changes in the political climate and technological advances will continue to shape corporate policies and economic growth, and at an increasing rate. Concurrently, consumers will continue to become more sophisticated, demanding higher levels of customization and corporate trust.

Boards must continue to become more active and agile as they respond to these challenges and must find ways to maintain transparencies throughout the process. It is imperative that boards of directors remain informed, connected, work efficiently as a team, and united among the members, the organization, and its stakeholders.

To help your board manage the ever-changing landscape, sign up today for a free trial of Board Management software.

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