Trends in Corporate Governance

Trends in Corporate Governance

The business environment is constantly changing. Likewise the trends in corporate governance are changing.

Technology is taking over more and more fields. Profitability, growth and sustainability are increasingly intertwined. Boards of directors are looking for the best ways to manage the constant challenges.

Unprecedented volatility forces them to understand the impact of the issues they face on corporate governance in 2023. The continued interest of stakeholders and investors in the effectiveness of boards of directors increases the pressure even more.

In this context of permanent change, boards of directors must be agile, efficient and well informed. That is why it is important to review the emerging trends:

Efficiency comes first

Instability will continue to be the new normal and businesses will depend on boards of directors for clarity and support. Effective communication will be essential, especially between board members and the CEO. Volatility will continue to be fueled by inflation, regulatory change, political instability, the threat of recession. Proactive boards able to make good decisions quickly, those with solid corporate governance practices that know how to reduce risk, manage compliance, promote accountability, increase transparency will succeed.

General manager’s independence

When board members feel bound by relationships, business, personal, or social, by benefits, compensation, or anything else, they can lose objectivity. An independent CEO can bring new perspectives and new ideas, increase the diversity of knowledge and expertise of the board of directors, and keep the company’s interests at the center of attention. Modern corporate governance depends on this independence so that boards make the decisions that facilitate the achievement of the company’s short, medium and long term objectives.

Management salary model

The pandemic has highlighted large wage discrepancies between employees and management. There were situations where companies were struggling not to go into insolvency, but the management approved their bonuses and bonuses. Boards of directors need to re-evaluate the remuneration model for executive directors and the CEO. A thorough assessment and understanding of the executive pay structure (compensation, incentives, bonuses, etc.) will ensure that pay equity and equal treatment are ensured throughout the company.

Evaluation of the administrative boards

Carrying out periodic evaluations of the activity of the board of directors according to the performance per year and of the individual members ensures efficient operation in the long term. The complex challenges on boards’ agendas make periodic performance reviews a necessity. This will identify strengths and areas for improvement, making the board more productive and forward-looking. In addition, it assures investors, regulators and stakeholders of the effective functioning of the board of directors.

Accelerated hyper-digitalization

Technology is fundamentally changing the business model in all industries. Overseeing this transformation requires a board that understands and appreciates the opportunities that accelerated hyper-digitalization brings. Cyber security will continue to be a priority for boards of directors. Thus, board members must be tech savvy to determine how technology will improve every aspect of the business.

As boards and companies define their operational and corporate governance strategies for 2023, they will continue to focus on growth, efficiency and sustainability. The priority issues, however, will include the evaluation of board members, the independence of the general manager, the reduction of salary discrepancies in the company, value creation and hyper-digitalization.