The future of corporate governance
Whether you are a business leader or an investor, it’s crucial to stay informed about the latest trends in corporate governance. As more and more companies become aware of their impact on the world around them, corporate governance is beginning to take on a whole new importance. Here’s what to expect in the future of corporate governance.
Increasing focus on sustainability and social responsibility
As companies continue to become increasingly aware of their impact on the environment and society, corporate governance is placing an ever-increasing emphasis on sustainability and social responsibility.
Companies are now expected to consider how their decisions will affect their bottom line, environmental footprint, and the communities they operate in. This trend will only increase as governments worldwide crack down on unsustainable practices and pressure companies to become more responsible corporate citizens.
For example, many companies are now implementing programs to reduce their carbon emissions or have adopted a “triple bottom line” approach that considers social, environmental, and economic criteria when making decisions.
Transparency becoming the norm
The days of questionable corporate governance practices such as insider trading and off-the-books accounting are quickly becoming a thing of the past.
Companies are now expected to be completely transparent about their operations, from executive compensation to environmental practices.
This trend will only increase as companies realise that transparency is critical in earning and maintaining public trust.
Greater scrutiny of executive pay
As income inequality continues to be a topic of public concern, there is increasing pressure on companies to be more transparent about executive pay and to ensure that it’s fair and aligned with company performance.
Companies are now expected to provide a detailed breakdown of executive compensation and the criteria used to determine it. This is likely to become a more pressing issue in the years to come as public scrutiny continues to increase.
Read more: What is a remuneration committee?
Increased use of technology
Technology has played an increasingly important role in corporate governance, with companies relying on software-driven systems for compliance, risk management, and data analysis.
However, this trend is likely to accelerate in the coming years as digital technologies such as analytics and AI become even more embedded into processes such as compliance, risk assessment, decision-making, and stakeholder engagement.
The rise of technology has also made it easier for shareholders and other stakeholders to monitor what’s happening in a company, enabling them to hold executives accountable for their decisions and ensure that companies stay true to their corporate governance commitments.
Greater emphasis on diversity and inclusion
Over the next few years, an increasing focus on diversity and inclusion within organisations will likely be another significant trend in corporate governance. Companies are now recognising that having diverse teams can lead to improvements in innovation and creativity which can drive business growth and success.
As such, many companies are actively looking for ways to attract talent from all backgrounds while ensuring that existing employees have access to opportunities regardless of gender or ethnicity.
For example, Sodexo has been putting in extra effort for 20 years to ensure the gender balance of its staff is as equal — and equitable — as possible. It has been so successful that it was included in the 2020 Bloomberg Gender-Equality Index, an index that tracks the financial performance of companies with a prioritised commitment to gender equality. 37% of Sodexo’s executive committee are female, and women make up 60% of the board directors. This is even more impressive given their goal is to have at least 40% of its senior leadership team made up of women.
Read more: Diversity isn’t just about gender
The growing importance of stakeholder engagement
Stakeholder engagement is becoming increasingly important in corporate governance. Companies must proactively engage with their stakeholders to maintain trust and ensure long-term success. Stakeholders such as customers, employees, suppliers, shareholders, regulators, and other interest groups increasingly demand greater organisational transparency about their operations.
Corporate governance has always been a complex field. Still, it’s rapidly evolving due to its constantly changing landscape driven by technological advances, increasing demands for sustainability and social responsibility from investors and stakeholders alike, and growing emphasis on diversity and inclusion initiatives across organisations.
It’s essential for business leaders & investors alike to stay informed about these trends so they can ensure their corporate strategies remain up-to-date and effective. By staying ahead of these trends, you will well position your organisation for long-term success.
Read more: A guide to ESG reporting