Rich Fields & Rusty O'Kelley III
Russell Reynolds Associates

The March, 23 edition of The Hub brings you a survey report from Russell Reynolds Associates which produce an annual outlook of the corporate governance landscape across the globe and based on the views of global institutional investors, shareholder activists, pension fund managers, regulators, proxy advisors, and other corporate governance professionals. 

Emerging environmental, social and governance issues are laying way for radical regulatory changes and creating new trends of Corporate Governance. In an inter-connected world, it is pertinent to understand these trends and align your business strategies & process. 

The following three global Corporate Governance trends will be in focus in 2023:

A. Skepticism about board quality 
With more savvy and empowered stakeholders paying close attention to many aspects of board performance, 2023 will see further scrutiny of board effectiveness & composition and directors’ competency to deal with emerging challenges. 

While India could experience a great refreshment of non-executive director appointments, European companies continue to face demand for upgrades to board skills and structure – such as the requirement for German companies to have two financial experts on their boards, as well as a dedicated sustainability expert. The US is entering a new universal proxy era that will invite a more assertive approach by shareholders on director qualifications and disclosure.

B. CEOs in the crosshairs
Geopolitical issues like Ukraine war, post-covid supply chains disruption, and rising inflation are putting strain and stress on companies and their leadership which would lead to greater emphasis on board oversight of CEO performance and succession planning across geographies. Executive compensation will be in harsher spotlight given growing investors’ weary of outsized payouts and excessive bonuses and evolving expectations for compensation linked to Environmental, Social, and Governance (ESG) issues in the UK.

C. Maturation of ESG programs and disclosures
Despite some increasingly pushing back against the ESG agenda, global investors are doubling down on demands for enhanced sustainability reporting and environmental responsibility activities. Most notably, the Corporate Sustainability Reporting Directive will disrupt the ESG landscape across the European Union by harmonizing standards and shaping the reporting environment for years to come. The aperture on ESG issues continues to broaden as a growing number of stakeholders demand sustainability and corporate social responsibility assurances. The Say on Climate movement is shaping up to be the next big thing in the UK, and there is a higher demand for ESG skills in Indian boardrooms. The climate agenda continues to demand attention in Latin America. In the US, expect an increased focus on human capital issues and labor rights.

Corporate governance trends in India

As term cliffs approach, boards look to balance and diversify
The 2013 Indian Companies Act allows for two maximum terms of five years each for independent director. Accordingly, 2023 marks the end of the maximum 10-year term for many directors. This “cliff” is likely to drive fresh NED appointments, and companies have already started using this as an opportunity to pause the default mode of a like-for-like replacement. Instead, they’re adopting a more strategic, forward-looking approach to board composition that helps create a more balanced and diverse board that best serves future business needs.

Increased focus on strengthening governance ecosystems
A combination of multiple factors have led to higher standards of stewardship from the director community. This voice of the governance ecosystem will become louder in the coming years as proxy advisory firms continue to become more relevant and integral, institutional investors become more active voters, and foreign investors focus more on the independence and fiduciary responsibilities of independent directors. 

Board's focus on the human capital aspect will continue evolving
The role of nomination and remuneration committees will continue to increase and evolve as human capital aspects are becoming increasingly critical in India’s fast-growing and dynamic market – both for boards (composition, effectiveness, capacity building, executive director compensation) and their companies (succession, talent, and compensation strategy, culture).

Boards are actively looking for increased ESG and technology skills
ESG skills continue to be in high demand in boardrooms. The Business Responsibility and Sustainability Report is mandatorily applicable from the fiscal year 2022-23 onwards. 

Companies are recognizing boards as competitive differentiators
Increasingly, companies are realizing the value of boards as a strategic asset and are beginning to go beyond the regulatory minimum to consider every option for making their boards more effective.

To take view on Corporate Governance trends in various other jurisdictions including US, UK, EU, New Zealand, Germany, France etc, you may click the below link for accessing the Full Report-

Click here to access the Report

(IICA acknowledge the authorship/ownership of the Report and republishing the same for the education purpose only.)