As we close the chapter on another year, the corporate governance landscape of 2020 looks both promising and complex. What’s on the road ahead for US boardrooms? Which landmark events, regulations, and crises have set the tone for 2020?
In the first report of our new Modern Governance Series, Diligent has partnered with CGLytics to assess the governance landscape. Crisis, culture, ESG, company purpose—we cover it all. Here’s what we believe is in store for 2020:
(1) ESG Moves Beyond an Acronym
In 2020, we foresee more clarity and action around the board’s role in ESG. According to CGLytics CEO Aniel Mahabier, more than $30 trillion of global assets are now assigned to ESG strategies—a total that has grown by more than 30 percent in the past two years. A key theme for 2020 will be ESG integration—that is, the thoughtful integration of these ESG factors into board reporting, shareholder engagements, strategic discussions, and even CEO pay.
(2) Conversations Around Board Diversity Will Evolve
As boardroom challenges become more global and digital, the skills matrix approach to assessing gaps becomes dangerously insufficient. For example, a checkmark for “Technology” fails to capture the distinction between cybersecurity and digital marketing expertise. In 2020, we predict that board composition and diversity will continue to be a top priority for institutional investors. Yet, we believe they will increasingly look to boards for more context: “Why is this the right group of people—and the right set of skills—to tackle the organization’s challenges ahead?”
(3) Company Purpose is No Longer Negotiable
Why does your organization exist? How does it positively impact its employees, shareholders, customers, and communities? Organizations that don’t have good answers to these questions could find themselves in a compromising position this year. When approached strategically, company purpose should power everything from executive compensation to company culture. Organizations with a clear purpose will find it easy to engage with their stakeholders.
(4) Poor Company Culture Will Remain the Gateway to Crisis
Peel back the layers of any 2019 crisis, and you’ll typically find flaws in company culture. The root of poor culture can be many things: tone at the top, poorly designed incentives, lack of stakeholder empathy, or systemic discrimination. Unfortunately, we predict that this trend of culture-powered crises will continue in 2020. However, we also predict that boards will devote significant time and attention to the topic this year.
(5) New Information Models Will Arrive in the Boardroom
In a recent study on board meeting preparation, the Diligent Institute found that 71% of public company directors gather independent information about the company in preparation for board meetings. Many board members feel that they can no longer rely on management-prepared materials as the sole source of information: “It’s about getting alternate data points…” said board member Nora Denzel. “Having data from multiple sources—especially contrary, independent opinion from management—allows me to ask much better questions.”
For more insights, tips, and action items, download the full report: 2020 Outlook: The State of Modern Boardrooms. For more information on the 2020 Modern Governance Series, visit diligent.com/modern-governance-series.