governance-publishings

2025 Hong Kong Spencer Stuart Board Index

Mon, 30 Mar 2026 13:17:06 GMT

The 2025 Hong Kong Spencer Stuart Board Index is a comprehensive study of the governance practices for companies in the Hang Seng Index (HSI) and Hang Seng Composite LargeCap Index (HSLI). This index provides a snapshot of key governance practices across these two groups, including board structure and composition, diversity, committees, meetings, remuneration and board evaluation.

The Parker Review Report 2026

Mon, 23 Mar 2026 14:36:41 GMT

The latest report, issued on 10 March 2026, showed that 98 FTSE 100 companies met the target, with at least one minority ethnic director on their boards, which represents the highest level recorded since the review began. This is a significant increase from 2016, when only 47 FTSE 100 companies had a director from a minority ethnic group.

Succession Planning Best Practices in 2026: A Round-Up from Top Experts

Mon, 23 Mar 2026 10:13:01 GMT

Egon Zehnder spoke to three of their consultants who have handled successions with dozens of corporations all over the world, and learned from them about their experiences in the field.

Geopolitics and the geometry of global trade: 2026 update

Thu, 19 Mar 2026 10:55:11 GMT

Tariff splashes, AI waves, and the ripples reshaping global trade. McKinsey assess the effects of geopolitics on global trade.

Improving the quality of 'comply or explain' reporting

Mon, 16 Mar 2026 14:05:01 GMT

The Financial Reporting Council (FRC) has published updated guidance on 'comply or explain' reporting, designed to help investors, proxy advisors and other users of corporate reporting better understand and appreciate the value of companies that choose to depart from provisions of the UK Corporate Governance Code.

Improving the quality of 'comply or explain' reporting

Fri, 13 Mar 2026 09:44:37 GMT

Global antitrust enforcement report

Wed, 11 Mar 2026 13:10:50 GMT

AO Shearman's latest Global antitrust enforcement report offers an insightful analysis of the current state and future trajectory of antitrust enforcement worldwide, based on analysis of enforcement data from over 30 jurisdictions. It discusses the significant increase in fines, the impact of digital market scrutiny, and emerging trends in public and private enforcement practices.

2026 Board Monitor US - The day-one director

Wed, 11 Mar 2026 10:38:04 GMT

Fortune 500 boards are placing a premium on operational expertise and prior board experience. Stability matters today, but long-term board effectiveness, however, depends on cultivating a robust and diverse executive pipeline for the future.

Leadership Through Uncertainty

Tue, 10 Mar 2026 12:58:47 GMT

Uncertain times can severely test (and reveal) the quality of an organization’s leadership. It is during these times that great leaders act - and act decisively.

The Parker Review Report 2026

Tue, 10 Mar 2026 09:55:01 GMT

In the 2017 report, a series of recommendations were made and a “One by ‘21” target was set. The aim was for all FTSE 100 boards to have at least one director from an ethnic minority background by December 2021. A “One by 2024” target was set for all FTSE 250 boards. The latest report, issued on 10 March 2026, showed that 98 FTSE 100 companies met the target, with at least one minority ethnic director on their boards, which represents the highest level recorded since the review began. This is a significant increase from 2016, when only 47 FTSE 100 companies had a director from a minority ethnic group.

Stay the course: Five inconvenient climate truths boards must address

Fri, 06 Mar 2026 13:24:47 GMT

Boards must not pause climate action — strong climate governance drives long‑term strategy and advantage.

Women in Business 2026

Tue, 03 Mar 2026 10:22:43 GMT

The UK mid‑market is losing female CEOs just as scrutiny on diversity rises, Grant Thornton finds in its latest report.

Sustainability Outlook

Thu, 26 Feb 2026 14:25:51 GMT

A&O Shearman's Sustainability Outlook analyzes sustainability-related legal and policy developments across the world and offers a practical overview of regulatory trends and their impact on business strategy.

BDO 2026 Shareholder Meeting Agenda

Wed, 25 Feb 2026 14:23:03 GMT

This agenda is designed to help boards navigate these dynamics with clarity, confidence, and discipline. BDO examine several key topics with each section highlighting evolving trends, where shareholders are focused, and what directors should consider when evaluating their board’s effectiveness.

The State of AI in the the Enterprise

Wed, 25 Feb 2026 14:14:35 GMT

Organizations today stand at the untapped edge of AI's potential. Deloitte's 2026 AI report reveals that success hinges on the ability to move boldly from ambition to activation.

Global Corporate Governance Trends for 2026

Mon, 16 Feb 2026 14:14:52 GMT

RRA are pleased to share the eleventh edition of their Global Corporate Governance Trends. They have identified five trends that cut across borders and will affect board agendas and discussions in 2026.

What Drives Quality Governance In The Alternative Investment Market?

Fri, 13 Feb 2026 12:06:58 GMT

22 FTSE AIM Chairs share with Odgers their valuable perspectives on board governance and effectiveness.

Boards at the Right Altitude: Governing for Growth in Uncertainty

Wed, 11 Feb 2026 14:29:49 GMT

In Denver, a small group of public company CEOs and board directors joined Egon Zehnder to examine how effective boards lead when volatility is the norm.

Essential Lessons for Non-Profit Boards

Wed, 11 Feb 2026 09:32:41 GMT

INSEAD gathered experienced non-profit board members to offer their practical insights and guidance for non-profit and commercial boards striving to govern with purpose and impact.

Governing under high uncertainty: Opportunities for emerging-market boards

Thu, 29 Jan 2026 15:33:13 GMT

This report, produced in partnership with BCG and INSEAD Corporate Governance Centre, explores how boards in emerging markets govern under high uncertainty while navigating complexity and risk.

2026 predictions: Geopolitical, AI, inflation and people risks

Thu, 29 Jan 2026 14:35:52 GMT

Leaders who embrace scenario planning, balance AI and people priorities while managing geopolitical and economic pressures will find opportunities amid the volatility.

A growing call for accountability in the boardroom

Wed, 28 Jan 2026 12:16:08 GMT

In a new survey, directors are increasingly vocal about calling out underperforming members on the board.

Global CEO Turnover Index

Wed, 28 Jan 2026 11:36:39 GMT

RRA share the latest CEO turnover data across listed companies globally showing the proportion of CEO departures and appointments globally, as well as trends on CEO appointments by gender, tenure, and whether CEOs are internal or external hires.

KPMG Directors Quarterly: Q1 2026

Tue, 27 Jan 2026 15:43:46 GMT

In this edition, for audit committee members, KPMG share recent financial reporting developments, including insights from the 2025 AICPA Conference on Current SEC and PCAOB Developments as well as updates on US tariffs and sustainability reporting.

Evolving ESG-related enforcement risk in 2026

Tue, 27 Jan 2026 11:51:55 GMT

Expect ongoing investigative activity in some jurisdictions, with ESG themes emerging as predicates in fraud, consumer protection, sanctions, customs, and money laundering cases.

2026 global AI trends: Six key developments shaping the next phase of AI

Tue, 20 Jan 2026 10:44:57 GMT

These six key takeaways highlight the most important legal, regulatory and governance developments shaping AI in 2026, and what organisations should prioritise now to enable safe, scalable and compliant adoption worldwide.

NEDs reimagined - A post-Higgs review of the role and contribution of non-executive directors

Thu, 15 Jan 2026 15:41:22 GMT

The aim of this report from the IoD Commission was to consider whether the role of non-executive directors (NEDs), first defined by the 2003 Higgs Review, remains fit for purpose in today’s complex corporate environment.

Nominating and Governance Committees: Top Issues for 2026

Wed, 14 Jan 2026 11:58:46 GMT

Spencer Stuart have identified two key focus areas for nominating and governance committees in 2026.

KPMG On the 2026 board agenda

Mon, 12 Jan 2026 10:51:48 GMT

Drawing on insights from KPMG's conversations with directors and business leaders, they highlight seven issues to keep in mind as boards consider and carry out their 2026 agendas.

Compensation Committee Priorities for 2026

Thu, 08 Jan 2026 10:37:18 GMT

Compensation and human capital committees (CHCCs) play a pivotal role in driving value at this time, expanding their mandate to prioritize human capital evolution across all levels of the enterprise: ensuring talent development, engagement, and resilience, while continuing to uphold the critical responsibility of overseeing executive compensation.

Grant Thornton Corporate Governance Review 2025

Thu, 08 Jan 2026 10:20:41 GMT

Grant Thornton's latest Corporate Governance Review shows how companies are starting to frame governance for momentum, and how boards must also move from compliance to competence to get the most out of reporting and give confidence to stakeholders.

The non-executive director pay landscape in Japan, the U.S., and Europe: year in review

Tue, 06 Jan 2026 15:35:19 GMT

WTW's 2025 analysis finds that large Japanese companies are looking to reference U.S. practice in a push to attract global talent.

Future Proofing the Board: Skills Development, Succession & Strategic Fit

Tue, 23 Dec 2025 11:11:47 GMT

As organisations face rising complexity and scrutiny, Norman Broadbent and BDO have teamed up to explore what modern boards need to thrive in a rapidly shifting landscape. The third and final instalment - "Strengthening Capability Through Learning".

2025 UK Spencer Stuart Board Index

Tue, 16 Dec 2025 15:15:14 GMT

The 30th edition of Spencer Stuart's annual review of board composition, structure and remuneration in the top 150 FTSE companies.

Future Proofing the Board: Skills Development, Succession & Strategic Fit - Part Two

Tue, 16 Dec 2025 14:35:26 GMT

As organisations face rising complexity and scrutiny, Norman Broadbent and BDO have teamed up to explore what modern boards need to thrive in a rapidly shifting landscape. The second instalment is - "Rethinking Composition & Succession".

Board Value Index - Are boards delivering on their potential?

Mon, 15 Dec 2025 15:24:54 GMT

In this report, Board Intelligience share the findings of their research with 233 company directors in the US, UK, and Canada. The report reveals where they believe their boards add value and explore what they perceive to be the greatest barriers to board effectiveness. The report also examines boards’ readiness for two of the most pressing issues of our time: the rise of disruptive technologies like AI and the rapidly growing threat of cyberattacks.

BDO in the Boardroom: The Power of Adaptive Governance: Leading Through Change

Mon, 15 Dec 2025 14:28:55 GMT

BDO's Amy Rojik and Lee Klumpp, discuss the concept of adaptive governance and how it is essential for organizations to remain resilient and effective.

Political Risk Index: H2 2025

Thu, 11 Dec 2025 15:20:45 GMT

The world has changed. This edition of the Political Risk Index reveals how shifting alliances and tariff walls are reshaping global trade, and what it means for your business.

A&O Shearman Corporate Governance & Executive Compensation Survey 2025

Wed, 10 Dec 2025 14:53:11 GMT

Now in its 23rd edition, the Survey provides insights on significant developments and trends in the corporate governance and executive compensation space through a review of the practices of public companies across a range of key guideposts.

Why Asia Pacific Boards are the Beacon of Leadership in an Era of Complexity

Tue, 09 Dec 2025 14:42:58 GMT

Asia Pacific Boards are increasingly facing situations where organizational success goes beyond traditional corporate governance.

Is Talent Enough? Why Boards Are Betting on Experience

Tue, 09 Dec 2025 12:10:21 GMT

As part of Odgers' ‘Leading Through Uncertainty’ series, they discuss changing leadership expectations and how boards can make confident, transformative decisions when the stakes are highest.

2026 AI Business Predictions

Tue, 02 Dec 2025 11:57:16 GMT

PwC forecasts are grounded in real experience and focused on practical impact—so you can take confident steps to turn AI ambition into transformative business value in 2026 and beyond.

Future Proofing the Board: Skills Development, Succession and Strategic Fit

Tue, 25 Nov 2025 11:41:34 GMT

As organisations face rising complexity and scrutiny, Norman Broadbent and BDO have teamed up to explore what modern boards need to thrive in a rapidly shifting landscape. The first instalment - "The Changing Shape of the Boardroom".

Navigating disputes and tensions in the boardroom: What it takes to be a high-performing chair

Tue, 25 Nov 2025 11:03:39 GMT

In this episode Hayden Wilson, Chair of Dentons in New Zealand and Global Vice Chair, and Mary Jane Daly, Independent Director discuss what it takes to be a high-performing chair.

Agentic AI in enterprise

Thu, 20 Nov 2025 10:34:00 GMT

How would you re-create your organization in light of agentic AI? Getting started with AI agents requires asking this question and taking gradual steps toward transformation. Discover the path to agentification and the cost, workforce, and risk factors you’ll face along the way.

FRC Annual Review of Corporate Governance Reporting

Tue, 18 Nov 2025 10:52:52 GMT

The Financial Reporting Council (FRC) has published its Annual Review of Corporate Governance Reporting, analysing reporting trends and practices among 100 UK-listed companies against the 2018 UK Corporate Governance Code for the last time. Going forward Annual reports will be reviewed against the updated 2024 Code which came into effect in January.

2026 executive pay: The Investment Association's latest update

Mon, 17 Nov 2025 12:06:32 GMT

The Investment Association (IA) has published its annual letter to remuneration committee chairs ahead of the 2026 AGM season.

KPMG Directors Quarterly Q4 2025

Fri, 14 Nov 2025 11:32:49 GMT

In this issue of the KPMG Directors Quarterly they look at AI ROI, board oversight of corporate culture, private company director views on strategic planning, and financial reporting updates.

AI focus: How boards are finding expertise to chart the unknown

Thu, 13 Nov 2025 11:19:35 GMT

As AI continues to reshape the world, the need for specialist expertise in the boardroom is becoming more pressing. Boards around the world are taking several steps to plug their growing AI knowledge gap.

Digital NEDs Deserve A Place On Your Board

Mon, 10 Nov 2025 11:51:50 GMT

During such uncertain times, appointing a digital subject matter expert at board level should be on the agenda.

A Practical Guide to the Board’s Oversight of Fraud

Mon, 10 Nov 2025 11:11:42 GMT

BDO has crafted this guide to assist board members in their mission to be proactive, diligent, and equipped with the knowledge and strategies necessary to uphold the highest standards of corporate governance.

Board AI Maturity Grows: Lessons from the leaders

Wed, 05 Nov 2025 11:54:38 GMT

Boards are getting smarter about AI, says Global Deloitte AI Institute Executive Director Beena Ammanath, shifting their attention from basic literacy to governance structures and accelerating innovation. IT leaders can play a central role, helping board members stay ahead of emerging trends, potential disruptions, and strategic opportunities in AI.

FRC publishes guidance to support Stewardship Code reporting

Thu, 30 Oct 2025 12:10:05 GMT

The FRC has published its guidance to the UK Stewardship Code 2026. The updated Code was published in June alongside draft guidance to support applicants’ reporting, which was included for the first time. Following a wide range of stakeholder feedback to the call for comments, the FRC has made amendments and now finalised the guidance.

Navigating Trump, Turbulence and the New Global Order

Tue, 21 Oct 2025 11:38:41 GMT

Chairs and NEDs from across the Consumer Markets sector join Norman Broadbent and KPMG for a forward-looking discussion on leadership through volatility.

EY Board of the Future Study 2025

Tue, 21 Oct 2025 11:31:42 GMT

In-depth interviews conducted with nonexecutive board directors of some of the largest global listed enterprises for the EY Board of the Future study reveal a governance model under strain — calling into question whether it can be sustained — but also an actionable agenda for change.

Is Your Board Still Compliant?

Thu, 16 Oct 2025 11:43:32 GMT

Governance Code changes now applicable to FTSE SmallCap could mean 40% of UK boards are non-compliant.

AI in the Boardroom: A Cross-Sector Reflection from Singapore’s Corporate Leaders

Tue, 14 Oct 2025 11:23:38 GMT

Board members across Singapore’s leading institutions reflect on the strategic, ethical, and societal implications of AI—and what it means for leadership, governance, and talent in a rapidly evolving world.

2025 BDO Board Survey

Fri, 10 Oct 2025 11:13:26 GMT

BDO recently polled over 200 public company board directors, revealing ongoing concerns with cybersecurity and data protection, the rapid pace of technological change, shifting demand for products and services, and macroeconomic unpredictability.

Annual reports and AGMs—what you need to know this year 2025-2026

Thu, 09 Oct 2025 11:48:47 GMT

In this latest edition of AO Shearman's podcast, they delve into the essential considerations for company secretaries and their teams as they prepare for their next annual report and AGM.

Lessons from Directors: How Boards Can Prepare for Activist Investors

Tue, 07 Oct 2025 11:53:42 GMT

In this article, Spencer Staurt share some first-hand experiences from directors about their hard-won lessons learned, their insightful tips, and their informed perspectives on how to prepare for activist incursions and what to do after an activist campaign begins.

Cyber in Focus 2025

Mon, 06 Oct 2025 12:03:36 GMT

Cyber risk is no longer a distant possibility. It is now a routine test of leadership, cash flow, and governance. Every incident carries financial,operational, and reputational consequences and boards are being judged on their readiness. Boards say they are ready. Claims show they're not.

Top 5 Tips When Transitioning From NED to CEO

Tue, 23 Sep 2025 10:43:04 GMT

The path from NED to CEO is not without its challenges – here are the key learnings potential candidates should keep in mind. 

Spencer Stuart Director Pulse Survey: Shareholder Activism

Mon, 22 Sep 2025 10:47:22 GMT

Spencer Stuart surveyed more than 360 directors of U.S. public and private company boards to understand how boards prepare for and respond to activist campaigns and explore how individual directors assess and engage with activist slates.

Artificial Intelligence – Insights for Boards and Executive Leaders

Wed, 17 Sep 2025 10:23:04 GMT

Artificial Intelligence (AI) has become a priority for corporate management teams. It is essential that boards and management teams better understand the technology and its immense possibilities: The strategic use of AI will be core to the future competitiveness of companies and their ability to evolve new business models.

Embracing Adaptive Governance: Strengthening Nonprofit Resilience in a Time of Uncertainty

Tue, 16 Sep 2025 10:18:06 GMT

Adaptive governance offers a strategic alternative designed to help organizations maintain mission alignment while navigating complexity and uncertainty. This article introduces nonprofit leaders and boards to the concept of adaptive governance, its evolution, benefits, challenges, and tools for implementation.

Complexity: the good, the bad and the necessary

Fri, 12 Sep 2025 13:54:48 GMT

Hans-Kristian Bryn is a senior risk management and governance adviser focused on value enhancement and protection. He leads complex risk management and governance engagements for both boards and EXCOs of FTSE 100 and 250 corporates, as well as Private Equity owned firms. He is also a thought leader on topics such as disruption, risk appetite, risk-based decision-making, ESG, governance and repetitional risk.

hanskristianbryn@outlook.com | https://www.linkedin.com/in/hanskristianbryn/

Carl Sjostrom is an independent senior adviser to company boards and management, working across Europe and with most industries and forms of ownership. With a focus on reward and performance, Carl is a frequent speaker and commentator on topics of strategy, executive pay and corporate governance issues from an international perspective.

carl@vitisolutions.com | https://www.viti.solution

Journal Issue September 2024

Carl Sjostrom and Hans-Kristian Bryn challenge the conventional wisdom that complexity is always a negative and provide an approach to assessing it in terms of its impact on value.

Framing the complexity challenge

The complexity of business operations and the common assumption that strategy execution will take the organisation from one stable state to another, create significant problems for risk, performance and reward frameworks. The steady state assumption fails to take into account that most companies will experience disruption, chaos and uncontrollable1 events at the same time as operating day-to- day business. As a result, control is lost and it is often complexity that is blamed for any subsequent failure.

Complexity is a subject that is so diverse that there is not a single but a broad range of definitions across natural sciences, economics, mathematics and other academic disciplines. In this article, we will approach it from the perspective of complexity being a function of the number, stability and type of entities and their processes and relationships . Or in other words, complexity can be viewed as what and how we do things in how many version, ie the organisational construct, and most importantly, how it all connects.

Most organisations treat complexity as being a negative and therefore the focus is on removing as much of it as possible by, for example, reducing product lines and simplifying the processes that underpin them. This presents the first governance issue, namely that stakeholders have different understanding and therefore individual perceptions of the extent to which something is complex. The engineer understands the measurements of performance for his long- term incentive plan but often finds its rules for capital events difficult to understand, the board understands the implications of capital events but often finds the incentive too complicated because of the performance measures, etc. This means that different parts of the company are likely to cope differently with complexity, depending on their respective perspective, expertise and experience.

The second governance issue is that most organisations do not incorporate complexity into planning and decision-making to ensure that they address it in a consistent manner, by identifying and classifying complexity and then defining appropriate actions and behaviours to manage value creation or remove value destruction. In the next sections we therefore propose a simple framework for making complexity a more integral part of planning and decision-making.

An alternative take on complexity

The challenge of complexity being perceived differently because of unique perspectives can to some extent be addressed with education and explaining the concerns of stakeholders to each other. But the definition set out above also allows us to address complexity from alternative angles and to recognise
that complexity can be viewed as good, bad and necessary.

The organisational construct, what and how we do things and in how many versions, is probably what most see as driving complexity. This construct and the number of different types
of both inputs and processes create an increasing level of difficulty of control. However, a company has to accept the complexity that is necessary to enter and remain in a chosen market. It also needs to work with complexity to gain sufficient advantage to allow a sustainable positive return, developing understanding and improving and innovating to make the offering attractive and resilient from uncontrollable events and competitors.

However, it is the stability and relationships of the organisational construct that make complexity non-linear and harder to work with. A company accepts this added dimension in order to, among other reasons, be more agile and able to adapt to a continuously changing environment. One of the challenges with such increased complexity is that the organisation will eventually struggle to cope and a typical reaction will often be to reduce all complexity regardless of its value contribution. Common examples can include exiting businesses, making employees redundant or reducing the number of products or services. All of these actions could be appropriate ‒ as long as the complexity has been well analysed, assessed and prioritised in terms of being good, bad or necessary.

‘Necessary complexity’ is something organisations have to live with in order to remain in business. There may be legislative requirements and rules, as well as features that are fundamental to providing the product or the service. Necessary complexity is not something we can get rid of, per se, but we can consider whether aspects of it may also be either good or bad for the company.

‘Bad complexity’ is not limited to necessary complexity but is any complexity that destroys value for the company. In its clearest form it is the result of poor design, poor decisions or lack of critical review that has led to value erosion. Bad complexity can also be something that has evolved with the company over time but diverged from the business environment to a point where it has become a value destructive and unsustainable strategy, eg when a company has created barriers to its own success2 by being world leading in an obsolete technology without a presence in the growth markets of the future.

‘Good complexity’ instead creates, maintains or protects value for the company.

This may be by creating a better offering, protecting critical resources or by building barriers to competition. The better offering may come from allocating resources into areas like innovation, variety and quality where the complexity is value adding or protecting the future survival of the company.

‘Barriers to competition can overlap with ‘necessary complexity’ and an example would be where large incumbent companies work with regulators to impose rules on certain types of products or solutions that then makes it prohibitively expensive for smaller actors to enter and thrive in the sector.

Recognising that no single state is likely to be ‘steady’ and that, through the journey from past to present to future, different types of complexity have different potential impact on a company, the next step is to bring into the review processes an analysis of how to minimise bad whilst maximising good complexity, including how to shift bad and necessary towards good complexity:

Minimise bad complexity : as bad complexity destroys value it should be the focus of ongoing review to reduce and eventually eliminate it. Typical indicators are where complexity creates functionality or features the buyer doesn’t value or is willing to pay for.
Shift bad complexity to good : bad complexity can sometimes be turned into ‘good’ complexity, where it is either appreciated by the markets or in other ways creates a barrier to competition that makes it value adding. For example, professions and guilds have historically kept competition at bay by adding complexity to products, services and processes that in turn reduce competition and allow higher prices to be charged.
Improve necessary complexity : necessary complexity should not just be accepted but should also be evaluated for how it can be improved. Necessary complexity is a key contributor to barriers to competition and if what is necessary to produce the product or service can be shifted to the benefit of the company, for example through disruptive innovation, then this can create a significant value boost. Similarly, working to make regulatory, legal and governance requirements a positive for the company3 can turn a complex negative at least neutral, for example by turning environmental restrictions into a positive selling point for products and services.
Improve good complexity : good complexity adds value, which will provide longer-term benefits to the extent that barriers to competition are created and maintained. These barriers ensure that competitors and new entrants form as small a threat as possible ‒ but it also involves risks. As per evolutionary theory, barriers to competition help the survival of the fittest but there is also a risk of evolving into being obsolete. Hence it is critical that good complexity is managed so that it remains relevant for both present and future requirements.

A risk perspective on complexity

Our classification highlights how increases in bad complexity can be an unintended consequence of past and current decisions. In addition, we have identified that businesses get disrupted and experience uncontrollable events, factors that can add further bad complexity, disturbing the transition to a future state.

It is therefore key that complexity and management actions in response to these risks are considered in an explicit and integrated manner.

‘Complexity risk’ has previously been defined as a risk which crystallises when the behaviour of an organisation (or a part thereof) becomes difficult to understand, model, or control, and therefore making it more challenging to anticipate and mitigate potential adverse consequences' .

The variables that drive this difficulty are in, particular, the numbers and stability of relationships between entities and processes.

In a risk management context, complexity risk is hardly ever addressed explicitly – nor as an opportunity. As a consequence, organisations don’t assess adequately whether the complexity in questions is good, bad or necessary. Equally, the level of complexity risk is to a large extent a function of past decisions (eg organic or inorganic growth), sometimes with unintended consequences as the decisions were not tested with regards to increases or decreases in different types of complexity. From a value creation perspective, it is therefore important to get clarity on complexity in terms of:

What are the legacy causes or drivers of complexity?
What is the current level of and type of complexity?
What is a desired future state – how much complexity and what type?

In many ways, there are parallels between concentration risk5 and complexity risk in that they are often hidden rather than addressed explicitly. One can think of examples such as high dependency on specific suppliers or supplier regions which have been pursued on a cost and efficiency agenda without consideration of the complexity this might give rise to in the event of a supplier failure or supply-chain disruption in the region.

Putting the spotlight on complexity also helps to avoid the pitfalls of increasing bad complexity as an unintended consequence of the pursuit of simplification or cost reduction. However, enhanced analysis of complexity is not sufficient to achieve the organisations’ intentions. The reward systems also need to be designed to encourage the right actions and behaviours to deliver the desired complexity outcomes.

Complexity and remuneration

Remuneration, in particular the design of executive pay arrangements, is an area that is often itself accused of complexity.

Though there is plenty of necessary complexity created by regulatory and legal requirements, there are also many examples of bad complexity from over- design and under-appreciation of the benefits of keeping reward mechanisms simple. However, remuneration also fulfils a key role in making good complexity work and, importantly, in helping organisations shift from one type of complexity to a more preferable one.

First, the primary strength of incentives is to provide a way of signalling what is important with regard to the actions and behaviours that should drive success. This matters as complexity tends to, on the one hand, make people err towards their ‘cognitive bias’ and, on the other hand, create rigidity in collective actions. In other words, executives and employees will generally make judgements biased by their personal circumstances whilst worried that pursuing positive change could be punished unless they see meaningful evidence, guidance and encouragement to the contrary.

Incentives are a key mechanism to provide such reassurance by rewarding actions and behaviours that are more aligned with the strategy and intentions that owners want to pursue6. Incentives can even indicate governance failing to deal with complexity7, such as when strategies are not reflected in incentives’ performance conditions, showing that the board has rejected good complexity (alignment of required actions and behaviours with reward) to avoid having to educate stakeholders, thereby inadvertently increasing bad complexity by weakening the relationship between key entities (eg management and strategy) and their stability
(eg understanding of what is expected).

Secondly, incentives are a prompt to evaluate both how the organisation has evolved to its current structure and what the future may bring. For many companies complexity inadvertently encourages a focus on the past. Looking to continue positive change that has previously been perceived as effective is often the path of least resistance, for example by setting the base line of performance as the prior year’s outcome. Similarly, complexity tends to drive towards generalisations of performance expectations, such as single profitability measures and fixed ranges of outcomes regardless of business or market characteristics.

Accepting and evaluating the complexity of non-linear relationships between inputs, events and outputs can help the organisation to recognise its exposure to market factors and to set targets and aspirations based on more detailed analyses of risks and opportunities. It also highlights that what may have been good complexity in the past and present can create barriers to success in the future, which will be difficult to break down if reward mechanisms protect them. For example, an incentive that promotes the continued focus on selling a mature technology will struggle to shift to a strategy of selling a new and growing one as long as it remains easier to maximise the sales incentive with legacy product revenues.

Finally, increased complexity from less stability and more points of contact with stakeholders and uncontrollables means that the links between input and outcomes become less linear and therefore more difficult to predict.

This is a challenge for many companies that seek linear relationships between performance and reward, in particular over longer time periods. This is addressed by recognising non-linearity, the structures of incentives and how the company balances elements of reward with the context of the business. Recognising non-linear complexity through balancing fixed and variable, financial and non-financial, and short- and long-term remuneration allows reward solutions that encourage the right actions and behaviours, generating a suite of possible performance and reward outcomes that is value adding for both owners and recipients of reward.

Conclusions

This article challenges the conventional wisdom that complexity is always a negative and provides an approach to assessing it in terms of its impact on value.

We have also set out how working with bad or necessary complexity can be turned into a strategic advantage when incorporated into planning and decision-making, not least through the way risk, performance and reward are considered.

In summary, risk, performance and reward considerations in a business case process should explicitly address complexity and consider the extent to which it is creating or destroying value. There are many practical steps that organisations can take to identify both the level and type of complexity in the current business model, as well as steps to reduce unwanted or bad complexity, whilst identifying ways in which competitive advantage and customer stickiness can even be improved by taking on good complexity. Due consideration of complexity will hence help ensure that key choices, for example strategy, portfolio, M&A and capex decisions, maximise the value impact.

1 See H-K. Bryn and C. Sjostrom, ‘Risk, reward and uncontrollables”, Governance, issue 355, March 2024, p. 12.

2 See H-K. Bryn and C. Sjostrom, ‘ Barriers to resilience and agility’, Governance, issue 337, September 2022, p. 8.

3 For example, see H-K. Bryn and C. Sjostrom, ‘A new governance framework’, Governance, issue 290, October 2018, p. 10.

4 See H-K Bryn, ‘Complexity – a risk which is generating returns?’, LinkedIn, July 2023.

5 See H-K Bryn, ’Where is your concentration risk hiding?’, LinkedIn, March 2024.

6 See C. Sjostrom and H-K. Bryn, ‘Risk, actions and behaviours’ (parts 1 & 2), Governance, issue 308, April 2020, p. 10; and issue 309, May 2020, p. 10.

7 See, for example, C. Sjostrom and I. Wilcox, ’Executive pay and innovation’, Pharmaceutical Executive, December 2016.

Risk, reward and uncontrollables

Fri, 12 Sep 2025 11:01:43 GMT

hanskristianbryn@outlook.com | https://www.linkedin.com/in/hanskristianbryn/

Carl Sjostrom is an independent senior adviser to company boards and management, working across Europe and with most industries and forms or ownership. With a focus on reward and performance, Carl is a frequent speaker and commentator on topics of strategy, executive pay and corporate governance issues from an international perspective.

carl@vitisolutions.com | https://www.viti.solution

Journal Issue March 2024

Hans-Kristian Bryn and Carl Sjostrom consider coping with 'dis-order' and how businesses should plan for such unpredictable and uncertain risks.

2024 will undoubtedly be another year we will look back at to recognise that the uncertainty faced at the beginning was of
a different shape and magnitude to that at the end. There are elections for around 4bn people across 70 countries, wars and trade conflicts. Geopolitical risk is now regularly on the board agenda, joining climate, environmental, health, cyber and technological change, not least disruption by AI. In this article, we will focus on how management and the board may respond to these issues but from the angle of when uncontrollable factors become permanent features that may cause the layout of the chessboard to change.

We define ‘uncontrollables’ as factors that the company has no or a minimal impact on. If, for example, a government legislates against use of a critical resource or trade relationship it is hardly management’s fault that profits are hit as it is outside of what can reasonably be controlled. But the predictability of uncontrollables shift and there comes a point when not including an uncontrollable factor in the planning and execution of strategy becomes a failure to take responsibility for it. Uncontrollables are hence a key consideration for both risk management and the success businesses reward and we are seeing signs of more permanence in more uncontrollable factors than ever before.

Remuneration responses to long-term shifts of uncontrollable factors

The most common long-term uncontrollable impacting reward is inflation, where prices move up as the purchasing power of money weakens. As it increases, inflation impacts remuneration in many different ways, notable being: first, balancing cost- of-living increases to maintain employees’ standard of living against society’s demands on not fuelling inflation and shareholders’ increased costs; secondly, that wage inflation becomes more differentiating as scarce labour not only can, but increasingly chooses to, exercise its bargaining power; and, thirdly, that differences in inflation rates, such as those between countries or sectors, need to be managed. Inflation exposes a company’s weaknesses in relation to a range of variables like productivity and sourcing of inputs and expertise, which means that it becomes harder to paper over the cracks.

However, if companies only react to a new situation they will be at a disadvantage. When there is a long-term shift in the nature of uncontrollable factors, businesses need to review the approach to reward and consider both what new information is required for decision-making and whether new structures or re-balancing of reward is needed. For example, higher inflation rates now lead to higher percentage increases in remuneration levels than companies have seen for a long time. This means that the distinction between merit, promotion and cost-of-living increases for salaries become important again and that in turn means that decisions on differentiation between employees can either generate strategic advantage or a struggle for survival. Inflation puts pressure on the affordability of salaries and benefits, which should make boards reflect on both workforce structures and the proportions of fixed and variable pay, not least for executives in countries where investors try to contain salary increases to within the average rate of salary change.

Variable compensation, like bonuses and long-term incentives, is even more sensitive to shifts in uncontrollable factors. It is not only impacted by the points above, not least as variable pay tends to be a function of the base salary, but most performance measures that determine the value of incentive outcomes are very sensitive to how uncontrollable factors are treated. This leads to frequent points of friction between board and management as to the common understanding of how performance is measured, in particular in terms of how changes to variables like inflation, currencies, regulations and supply chains are included or excluded from the calculations. Or to put it another way, when do executives and employees align with the experience of shareholders and when do they simply get paid for the jobs they do? The answer to that may seem straight-forward for many, but most boards that spend time on the question will recognise that it requires answers
that are grounded in a reward philosophy which is clearly articulated and communicated with both participants and other stakeholders so that there is a common understanding. To address the potential impact of uncontrollables, companies should therefore consider reviewing:

The remuneration philosophy to ensure that there is a clear approach to uncontrollables and update remuneration policies accordingly;
Processes for setting salary budgets as well as both levels and performance targets for incentives; and
Communications with employees and other stakeholders.

Risk planning/management challenges – being prepared

Both newspapers and digital platforms are full of articles that set out the case for why we are living with ‘unprecedented’ geopolitical uncertainty and by inference increased uncontrollables. It is tempting to view these developments as another set of stand-alone risks that are hitting organisations and making it much harder to plan and execute. However, there is also a need to step back and consider whether some of the developments we are facing, like sustained higher levels of inflation or concurrent geopolitical hotspots, represent systemic shifts from one state to another.

If the latter is the case, it becomes clear that our planning models and assumptions have to develop and respond to a new situation where the chessboard and rules of the game have shifted. Our planning and risk models need to perform in a world of ‘dis-order’ and incorporate a mind shift from looking at individual incidents or risks to multiple and linked risks which have longer term implications for strategic positioning and risk management.

We observe that one of the risk areas that is getting more attention due to the impact of uncontrollables is supply chain risk. As a consequence of the adverse impact on supply routes from multiple geopolitical hotspots, portfolio concentrations such as supplier company, supplier region and transport routes are becoming more prominent considerations. This is leading many companies to more thorough evaluations of solutions, such as near shoring, changes to supply routes and diversification of some of the existing concentration risks.

From a business management and oversight perspective,
the key question is clearly ‘so what can we do about it’? In fairness, none of us can do much to influence the underlying drivers of the geopolitical uncertainty or the resulting uncontrollables, so the focus therefore has to be on how businesses build resilience by planning and being prepared for when the risks crystalise.

As a first step, companies need to consider the relevance and impact of these risks in the context of their business strategy, operating model, footprint and context. In an earlier article [LinkedIn.com, 7 September 2021, Bryn, H-K and Sjostrom, C, 'Integrating risk, return and reward in business cases’ ]

We expect that leading companies are already well underway with the planning activities for uncontrollables, however, we
are also confident that many businesses are still in the starting blocks in terms of responding to long-term shifts. The current risk planning approaches tend to have been developed for more benign contexts than what we are facing, hence changes will be required to incorporate the impact of uncontrollables.

One of the questions we often face is ‘how should businesses plan for such unpredictable and uncertain risks?’ A great question which in itself implies that the answer is less about looking at risks in isolation or using existing approaches. These are risks that require management and the board to apply more in-depth analysis.

An approach (and there certainly isn’t one size that fits all) that incorporates most of the characteristics below is likely to generate a better discussion and hopefully lead to more considered responses:

Apply a scenario-based approach to planning and decision- making;
Incorporate multiple risks and their interdependencies – a good example is how geopolitical risks interact with economic risk both from a demand, cost, price and availability perspective;
Use a variety of distributions to fit the underlying characteristics of the risks and consider non-linear and non- symmetrical outcomes, eg a number of the risks that will be considered are likely to be binomial; and
A ‘probability times impact’ approach is unlikely to capture the true range of potential outcomes if the risk crystalises, as the impact will be best described as a range of outcomes.

However, it is not all about protecting against downside. There is clearly a place here for finding ways to get a competitive advantage from being better prepared than the competition. This could be from being able to respond more quickly and decisively as well as having identified possible market dislocations as a consequence of uncontrollables. For example, the steps we have outlined above should enable businesses to be more responsive and agile in responding to sudden, or permanent, changes to resource availability (and cost) even if these are driven by multiple and concurrent risks crystalising, for example climate change leading to unexpected and severe weather events.

Uncontrollables raise significant governance and oversight issues due to their inherent complexity both from a downside as well as opportunity perspective. There are therefore additional oversight implications to focus on in order to ensure that the governance arrangements remain fit for a world of ‘dis- order’. Specifically, we recommend to:

Review board and committee mandates to ensure that they incorporate appropriate tests and questioning of how new uncontrollables are evidenced in risk frameworks and performance measures for incentives;
Test policies for coping with permanent shifts – for example, implications for how we look at profitability, efficiency, elasticity of demand from inflation and other uncontrollables, and review whether any additional policies and processes are required to have a more comprehensive governance framework; and
Test processes, like those related to business cases, for how they incorporate responses to uncontrollables – such as the impact of nearshoring, shifting investments from high to low inflation countries, testing vulnerability of operations from cost-cutting and dealing with sudden pension surpluses.

We recognise that both the management and board agendas are getting squeezed and that it is challenging to find, and ringfence, sufficient time to have substantive discussions about uncontrollables and their potential implications. However, it is easier to have these discussions before rather than after the uncontrollables become more permanent. We also see that the organisations that take time to have these debates build a better understanding and awareness. They also find it easier to build ownership and understanding of the steps, and value, of preparing for adverse outcomes.

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Boards of directors face a growing array of complex issues, from climate and sustainability to generative AI and geopolitical disruptions, navigating an unpredictable landscape of interconnected demands.

Key Takeaways from BDO’s 2024 Private Company Executive Compensation Survey

Mon, 18 Nov 2024 10:58:49 GMT

BDO's 2024 Private Company Executive Compensation Survey analyzes pay — including salaries, bonuses, and long-term incentives — for CEOs, CFOs, Heads of Operations (COOs), and top sales/marketing executives. The high-level takeaways highlight key drivers of executive pay such as industry, location, and ownership type, offering valuable insights for companies navigating the complexities of compensation strategy.

Gender Diversity in the C-suite: Women’s representation in the 2024 FTSE 100

Tue, 12 Nov 2024 14:32:07 GMT

While women hold 42% of the board seats at the United Kingdom’s biggest listed companies, there are still too few in top leadership positions, with a mere 9 women holding FTSE 100 CEO roles.

Board Directors and their Missing Report Cards

Thu, 07 Nov 2024 11:53:56 GMT

Only half of board directors are evaluated individually, according to a new Korn Ferry report. Why that might be hindering board effectiveness.

The IoD Code of Conduct for Directors

Wed, 23 Oct 2024 10:52:20 GMT

The Institute of Directors has published its Code of Conduct for Directors, which provides a practical tool to help directors make better decisions.

Boards Balance Innovation and Risk 2024 BDO Board Survey

Tue, 22 Oct 2024 11:00:35 GMT

Board directors are preparing for 2025 with an eye toward capturing new opportunities through technology and enhancing risk management. BDO recently polled approximately 250 directors at public companies to identify their areas of focus for the year ahead.

Global CEO Turnover Index

Sun, 20 Oct 2024 11:16:41 GMT

RRA share the latest CEO turnover data across listed companies globally including the proportion of CEO departures and appointments globally, as well as trends on CEO appointments by gender, tenure, and whether CEOs are internal or external hires.

KPMG Directors Quarterly: October 2024

Tue, 15 Oct 2024 11:12:56 GMT

KPMG's October Quarterly covers financial reporting updates, CEO outlook, post-election geoeconomic forecast, CEO succession planning, and board diversity disclosures.

2024 ISS Global Governance Survey

Thu, 10 Oct 2024 10:46:18 GMT

The 2024 ISS Global Governance Survey covers several governance and sustainability topics at national, regional and global levels, including poison pills and executive compensation in the US.

Annual reports and AGMs – what you need to know this year

Wed, 09 Oct 2024 11:23:21 GMT

In this podcast, A&O Shearman provide practical advice for company secretaries and their teams on what to consider when preparing for their next Annual Report and AGM.

Governance of AI: A critical imperative for today’s boards

Mon, 07 Oct 2024 14:19:11 GMT

In a new Deloitte Global survey of board directors and executives, almost 50% say AI is not yet on the board agenda. Is it time to step up AI oversight in the boardroom?

Why boards are focused on human capital governance and risk

Thu, 03 Oct 2024 11:26:14 GMT

WTW reports today’s boards of directors see managing people issues as critical to creating and preserving value.

Board Monitor Europe 2024

Wed, 25 Sep 2024 11:07:14 GMT

Heidrick & Struggles’ Board Monitor Europe 2024 report explores six ways boards, and specifically European boards, are reshaping their processes to thrive now.

Navigating a new era for the Non-Executive Director

Tue, 24 Sep 2024 13:11:30 GMT

This research - carried out by Norman Broadbent and BDO with 200 board members from SMEs through to large private and listed boards - suggests that while NEDs are stepping up to increasing challenges, they may also need more recognition for the work they do and better support, given the ever-increasing regulatory oversight and personal liabilities they face.

AI Risks: Running Scared?

Mon, 23 Sep 2024 13:37:52 GMT

Firms citing AI-related risks to business in annual reports increased a whopping 474% this year. How much should boards be concerned? Korn Ferry investigates.

Board Packs: The Elephant in the Boardroom

Thu, 19 Sep 2024 13:58:04 GMT

Board Intelligience and the NACD carried out possibly the largest ever research project undertaken into board packs in US businesses and asks 'what does a good board pack look like'?

PwC’s 2024 Annual Corporate Directors Survey

Wed, 18 Sep 2024 13:42:42 GMT

PwC’s Annual Corporate Directors Survey reveals that while boards are evolving, there is room for improvement to meet future challenges.

The economic impact of AIM companies

Mon, 16 Sep 2024 13:28:49 GMT

Despite an extended period of uncertainty, exacerbated by the COVID-19 pandemic, AIM companies are driving productivity and business growth. Grant Thornton share the key findings from their report.

Board Stewardship for a Resilient Business

Mon, 16 Sep 2024 13:20:00 GMT

Egon Zehnder explains how board members can adopt a stewardship mindset to navigate increased complexity.

2024 Spain Spencer Stuart Board Index

Thu, 12 Sep 2024 13:47:08 GMT

2024 marks the 28th consecutive year in the Spain Spencer Stuart Board Index has been published, covering listed companies in Spain. Since the first Spain Board Index was published in 1996, there has been a positive evolution of good corporate governance practices in Spain.

2024 US Global Markets Compensation Survey

Thu, 05 Sep 2024 13:32:28 GMT

Heidrick & Struggles' first annual US Global Markets Compensation Survey examines organization and compensation data from a survey of sales, trading, and research professionals in the United States.

EY Global CEO Outlook Report 2024

Wed, 04 Sep 2024 13:24:15 GMT

EY's latest CEO survey includes a new Global CEO Confidence Index, and there is one clear finding: confident executives are prepared to make positive and bold decisions – they are more willing to be proactive.

Director remuneration in FTSE 100 companies – 2024 report

Tue, 03 Sep 2024 13:50:25 GMT

WTW's recap of the 2024 Annual General Meeting season plus pay trends for executive and non-executive directors for companies in the FTSE 100.

2024 S&P 500 New Director and Diversity Snapshot

Tue, 20 Aug 2024 10:48:13 GMT

Each year, Spencer Stuart examines the makeup of the new class of S&P 500 board directors.

European Commission publishes second report on application of GDPR

Wed, 14 Aug 2024 10:42:47 GMT

The EU Commission published its second report on the application of the GDPR, following its first report published in 2020. Since the first report, the EU has introduced further initiatives, including in response to new technologies, to empower individuals.

15 Signs Your CEO is Underperforming (And What To Do About It)

Wed, 14 Aug 2024 10:37:47 GMT

To assist boards in recognizing and navigating decision-making around CEO underperformance, RRA have developed a list of 15 triggers.

Board Monitor UK 2024

Wed, 14 Aug 2024 10:32:28 GMT

Heidrick & Struggles' Board Monitor UK 2024 shows that in the United Kingdom, directors face an ever-increasing regulatory burden and a weakened position in global equity markets in the context of a polarized political climate that is creating an acute sense of pressure for many board members.

Large private companies continue to favour Wates Principles

Mon, 12 Aug 2024 10:00:33 GMT

The Financial Reporting Council has issued its second assessment of the quality of reporting from private companies who have chosen to follow the Wates Principles, introduced in 2018.

2024 BDO Private Equity Survey

Tue, 30 Jul 2024 10:14:30 GMT

To learn more about how PE is navigating the dealmaking environment and adjusting its value creation strategies to today’s market, BDO surveyed 484 U.S. private equity fund managers and operating partners and 208 U.S. portfolio company CFOs.

From Oversight to Foresight: Insights from Board Chairs in South Africa

Mon, 29 Jul 2024 10:26:01 GMT

Egon Zehnder hosted a dinner and roundtable discussion for Board Chairs of 12 of the largest listed companies in South Africa to discuss the topic: From Oversight to Foresight: The Forward-Looking board.

The EU AI Act: The Key Takeaways

Fri, 26 Jul 2024 10:08:19 GMT

BDO breaks down the key takeaways from the final version of the EU AI Act.

Tracking 2024 trends at midyear: Politics, labor, inflation, AI, ESG

Thu, 25 Jul 2024 07:41:55 GMT

In a disruptive environment, leaders prioritize long-term stability by focusing on strategies that support adaptability and growth.

Generative AI

Thu, 25 Jul 2024 07:07:23 GMT

Artificial intelligence (AI) raises many intellectual property (IP) issues. This guide addresses key IP issues raised by generative AI systems, meaning systems such as ChatGPT, Gemini and DALL-E with algorithms that generate new content. Using examples from a number of jurisdictions Norton Rose Fulbright consider the following IP issues in relation to generative AI systems.

KPMG's Global ESG Due Diligence Report 2024

Thu, 25 Jul 2024 07:04:04 GMT

The KPMG 2024 Global ESG due diligence study found 71 percent of respondents reported an increase in importance of ESG in transactions over the last 12 to 18 months.

FRC announces significant update to the UK Stewardship Code

Thu, 25 Jul 2024 06:46:09 GMT

The Financial Reporting Council (FRC) has announced significant revisions to the UK Stewardship Code application process and committed to five priority areas of review as it continues its revision the Code.

Collective intelligence in the boardroom and beyond

Fri, 12 Jul 2024 06:50:58 GMT

Jennifer Sundberg is the founder and co-CEO of Board Intelligence, which supports over 3,000 organisations to drive performance and high-impact governance through board and management reporting. She has played a vocal role in shaping governance best practice and is the co-author of ‘Collective Intelligence: How to build a business that’s smarter than you’ . jennifer.sundberg@boardintelligence.com

Megan Pantelides is Executive Director, Research at Board Intelligence. She has worked closely with boards and leadership teams for over 15 years, advising on corporate strategy, board effectiveness, and executive performance. megan.pantelides@boardintelligence.com | www.boardintelligence.com

Journal Issue February 2024

Jennifer Sundberg and Megan Pantelides argue that we need great thinking at every level of any organisation. In this article they share what they’ve learned from working with boards and leadership teams over the past 15 years and offer a framework for building teams that think harder so they can act smarter and faster.

A few months ago, the former Smiths Group Chair and 3M chief executive Sir George Buckley floored us with a simple question. ‘The core of every business is dying, yours included. What are you doing about it?’ he asked.

Sir George had cut right to the heart of what keeps so many of us awake at night. PwC’s most recent CEO survey revealed that 45% of CEOs believe their company will not be viable in ten years if it stays on its current path. And only a third of CEOs are prioritising their core business in their growth plans, according to a 2023 survey by Arthur D. Little.

We all know that the status quo is a path to nowhere. What’s hard is surfacing the insights and ideas that will help us find a new path. To do that, we need great thinking at every level of our organisation. Because the businesses that thrive in the long run are those that get everyone’s brains firing, harnessing their collective intelligence to unlock new horizons.

How do you find the new path?

Building this capability is the smartest thing a leader can do. Indeed, it’s what the leaders of many enduringly successful businesses have done, from Jeff Bezos to Sir John Timpson. Look beyond the celebrity CEOs and you’ll find organisations in which everyone is equipped with the tools, skills, and confidence to use their brains and apply them where it matters most.

Take Amazon, for example. Deep and detailed thinking has long underpinned the e-commerce giant’s ability to innovate and execute at pace. ‘At Amazon we spend a lot of time writing documents, because it helps you think things through and gives others confidence that you’ve done so’, a former colleague and current Amazonian told us. ‘That builds trust, which helps us move quickly – you don’t have to go up the chain on every decision. Deep thinking is a hugely important part of Amazon’s entrepreneurialism.’

You see something similar at Timpson, where ‘upsidedown management’ has been key to building an enduringly successful business. As Sir John Timpson once put it to us: ‘I don’t like being told what to do, so there’s no reason why anyone else should. Our store staff understand our customers the best, so we’ve put them in charge. Management is there to support and empower our staff and this rolls up to the board.’

Organisations like these are designed to get everyone thinking rigorously and consistently, so that decisions can be made with greater speed and closer to the front line. By making use of everyone’s minds, they avoid creating bottlenecks and produce better thinking overall.

So how do you build an organisation that’s fuelled by collective rather than individual intelligence? Our view, having studied this for the past 15 years, is that it boils down to building three capabilities at every level: critical thinking, great communication, and a shared focus on what matters most.

How do you get everyone thinking?

The first step is to get everyone asking more and better questions. Questions fuel our critical thinking and creativity, but while we all start off as prodigious questioners, we ask fewer questions as we grow up. The good news is we can relearn this skill, by making it a habit to ask the simple yet powerful questions that we so often overlook, like ‘Why?’, ‘So what?’ and ‘Now what?’.

Our routines are full of opportunities to make asking questions like these a part of people’s day-to-day working lives. They’re the rituals that every business is run on, like quarterly business reviews and board meetings.

You can embed questions into these activities in a few different ways. You can use questions as the headings within your preread or report, or as the agenda items for the meeting. This way, the questions shape the thinking that needs to be done before, during, and after the ritual.

You can also package questions up into ‘set plays’ – preloaded sets of questions for common rituals. They help people to get into the habit of structuring their thinking around the right questions before diving into the detail.

Versions of these ‘set plays’, which we call ‘Question Driven Insight plays’ (‘QDI plays’ for short), have been used everywhere from the British Army to mining companies and banks. You might use one like this for a performance review, for example:

What are we trying to achieve?
What’s gone well and what has not?
What are the key risks and opportunities?
Given all of this, what should we stop doing, start doing, or do differently?

When you charge your routine activities with set plays, asking the right questions quickly becomes a habit – and the activities themselves become more valuable to everyone involved.

How do you make sure good thinking travels?

To convert your great thinking into action, you need to get your colleagues on board with it by expressing yourself with clarity and impact. But that’s rare, even at the highest levels of business – as we’ve seen from the thousands of board and management reports we’ve reviewed.

The problem is that most of us learn bad communication habits disguised as best practice from an early age. For example:

Using slick slide decks to share insights and ideas. Slides shouldn’t be your default. Narrative reports can be a better way to crystallise your thinking and get others to back it.
Sharing the takeaways at the end. No, to land your message the bottom line should come first.
Using ‘clever’, complex, technical language. Short, simple words and sentences are easier to read and make a better impression.

You can't get people to adopt good communication habits through training, style guides or simply telling them to do it. You need to make it difficult for them not to do it well. Technology, and particularly AI with its immense capabilities to analyse text, can play a major role here. Rather than doing the thinking for you, it can help your thinking to shine by providing the nudges and guide rails that help you express yourself more clearly.

How do you focus good thinking on the right things?

Focus is essential for any business, but it can quickly turn into tunnel vision.

The best way to set, or shift, a team’s focus is to change the questions you’re asking them. After all, as the saying goes, ‘He (or she) who asks the questions, controls the conversation’.

For example, if you were asking ‘How can we cut costs?’ and now you want to ask ‘How can we delight our customers?’, put that question into your QDI plays. This makes it a priority for managers, who then make it a priority for their teams and so on.

Dame Carolyn McCall did just this at easyJet, making ‘people’ the airline’s top priority by cascading a simple question (‘How do our people feel, and what can we do to better support and enable them?’) through the company’s board papers, KPI dashboards and management decks. Team, customer and shareholder satisfaction were transformed, because she got everyone thinking about the right things.

Marc Benioff takes a similar approach with Salesforce’s ‘V2MOM’ documents, which cascade the company’s priorities through the business. Every year, each team asks itself five questions – Salesforce’s version of a QDI play – to understand where they are going and how they are going to get there:

Vision – what do you want to achieve?
Values – what’s important to you?
Methods – how will you achieve it?
Obstacles – what could get in the way?
Measures – how will you know you’ve succeeded?

‘What I like about the V2MOM is that it encourages creativity, change, and empowerment,’ Benioff wrote in 2020.

Whose job is it, anyway?

At its heart, collective intelligence is about running a business well. In other words, it’s about good governance. And that sits squarely within your remit.

It transforms governance forums from frustrating bottlenecks into drivers of performance that enable transformation and innovation.

But it also ensures governance can be a force for good, by injecting robust questioning, deep thinking, and healthy challenge into corporate cultures and ways of working. When we routinely ask more and better questions, we’re forced to confront uncomfortable truths and acknowledge inconvenient risks. We see challenge not as confrontation but as an opportunity to sharpen our thinking. And it becomes hard to ignore the ripple effects of our decisions, making it more likely that we’ll think before acting, and therefore act in everyone’s interests

Women in business 2024: Pathways to parity

Wed, 10 Jul 2024 07:34:40 GMT

For 20 years Grant Thornton have been measuring and monitoring gender diversity in senior management roles across mid-market businesses. There’s been welcome progress in this time; however, the 2024 report shows that progress is still too slow. Therefore, this report focuses on the pathways and tangible actions that businesses can deploy today, to have a measurable and positive impact on the number of women in senior leadership positions tomorrow. These are the pathways to parity.

2023 Canada Spencer Stuart Board Index Snapshot

Mon, 08 Jul 2024 07:38:44 GMT

The Canada Spencer Stuart Board Index Snapshot provides an in-depth analysis of non-executive director appointments and board composition for the boards of Canada’s largest publicly traded “blue chips.”

Why Boards are Becoming More Courageous

Mon, 08 Jul 2024 07:20:31 GMT

Odgers Berndtson believe complex matters such as shareholder activism, executive remuneration, regulatory compliance and strategic performance have caused shifts in corporate governance, highlighting the assertiveness and agility boards need.

BDO Global Quarterly Bulletin

Sun, 07 Jul 2024 13:16:11 GMT

BDO Global has released its Q2 International Sustainability Reporting Bulletin. It underscores the increasing global momentum towards mandatory ESG disclosures by companies, with developments in the first half of 2024 across multiple jurisdictions, including the United States and the European Union.

The Internal Audit and Risk Agenda

Thu, 04 Jul 2024 06:43:13 GMT

The BDO Internal Audit and Risk Agenda sets out some of the key challenges on the horizon that Internal Audit should be considering when thinking about the wider assurance footprint relevant for their organisations.

Leadership Confidence Index

Mon, 01 Jul 2024 07:58:39 GMT

Explore leaders’ confidence in their executive leadership teams and how this has shifted over time in RRA's Leadership Confidence Index.

The Nominating and Governance Committee Chair Has the Most Precarious Seat on the Board

Mon, 01 Jul 2024 07:27:08 GMT

As investor support for NomGov chairs declines, boards should monitor evolving expectations says RRA.

Nominating/Governance Chair Survey 2024

Sun, 30 Jun 2024 08:03:55 GMT

Nominating/governance committees are increasing their focus on board composition and director succession planning, while CEO succession planning and board effectiveness remain top priorities, according to the findings of the 2024 edition of Spencer Stuart’s annual survey of nominating/governance committee chairs.

What next for boards?

Fri, 28 Jun 2024 12:37:24 GMT

Richard Sheath is a Director of Independent Audit Limited, the board effectiveness and governance specialists.

Journal Issue March 2024

Richard Sheath looks at the new Code ‒ specifically its provisions on risk management and internal control.

‘It doesn’t change anything really’ … ‘We do it anyway’ … ‘We just need to make sure we have the documentation in place’. Whilst far from all-encompassing, these are some of the more typical responses we’ve heard to the latest version of the Corporate Governance Code.

For some these may be a reasonable response. Well-run companies will be checking material controls constantly and have tried-and-tested risk management frameworks. And regulated financial services companies have been needing to stand up to scrutiny for a long time.

But the opportunity to use the new Code requirements to bring more discipline should not be underestimated. If tackled constructively, it should bring value too.

As with many aspects of governance standards, the benefit comes from the nudge. Being required to make sure that you can support what you’re saying involves a rigour that might need a refresh. Or maybe prompt a rethink to see whether you can do more or do it better.

And if you think there’s not much benefit to be had from yet more ‘governance burden’ you’re starting from the wrong place.

Don’t think of it as ‘what do we need to do to comply with the Code?’ Instead, think of what you need to have in place so that you can be confident that risk management and internal controls are achieving what the business needs. And that you can answer the ‘how do we know?’ question.

The opening gambit needs to be ‘what should we be doing anyway to benefit the business?’ Because if you’re doing what you need to do to run the business optimally, compliance with the Code should then simply fall out of that at no great extra cost or effort. It just becomes a question of making sure you have enough documentation to support your conclusion should push come to shove. And often there are also business benefits to that from the discipline, structure and confidence that comes with evidencing.

If you’re not doing what you need to do, then it should be obvious that, regardless of Code requirements, you should make improvements in any case.

So, having got in the right frame of mind, what are the next steps for Audit (and/or Risk) Committees? It’s still early days. Along with many boards, our thinking is still developing. But here are some initial thoughts to get the discussion started. These are some of the ingredients that we think will be needed. But it’s not the full recipe – that needs to come from further thought and testing. And they are not consecutive steps as such: in practice, these sorts of questions will need to be asked and considered in parallel.

Work out the target business benefits.

Put the Code to one side for a while and ask what you want to gain from a fresh look at how you know that risk management and material controls are working effectively. And what you might also gain from documenting and evidencing: will it give you more coherence and structure as well as greater comfort?

Pin down what ‘effective’ risk management looks like

There’s often an assumption that everybody knows what ‘effective’ means. But can you actually set out clearly what impact risk management should have? How should it influence decision-making? How does it get factored into day-to-day work and decision-making? And into strategic plans and initiatives? What should an effective response look like? Along with a strong risk culture to underpin it all?

Set out a model to help assess risk management effectiveness

It’s useful to have a framework to structure and challenge your thinking. That might be one of the established models such as COSO. Or it might be more strategic and at a much higher level. Either way, it’s important that you make sure it covers three elements we often feel get neglected: the risk culture, the management controls and the approach to learning from things that didn’t go to plan. Typically, there’s an over-emphasis on checking that you have the sort of Enterprise Risk Management structure and process that everybody expects you to have. Audit & Risk Committees regularly do not go far enough in looking more widely at whether risk management is having an impact on how the business is run; if it’s not making enough of a difference, it surely cannot be ‘effective’.

Work out the link between material controls, principal risks and risk appetite

Too often we see the principal risk discussion being relegated to confirmation of the externally reported list rather than as an opportunity to tie in the threats and headwinds to the strategy. The need to confirm the definition of the material controls presents an opportunity to both check the relationship and also to rethink how the principal risk discussion (and probably risk appetite definition too) fits in with risk management and material control effectiveness. And whether you’re getting what you need from the discussions.

Define what ‘material controls’ mean for you

There’s no single definition – and each business and board needs to work it out in their own context. It’s going to be key for Code compliance, given that the board will have to make a declaration on the effectiveness of material controls at the balance sheet date (or ‘explain’ why you’re not complying). So, the number, extent and nature of the material controls will determine the extent of the challenge. That might be tricky to do in a short space of time, particularly for large, complex businesses. The solution will be to rely on the controls working well throughout the year.

Make sure day-to-day working of controls helps you make the declaration

A quick reaction to the Code is ‘how can we do the work needed between year-end reporting dates?’. It may well be unrealistic within the time frame and resources available – but that’s not the question. Instead, you’re going to have to rely on controls working well as business-as-usual – and getting the assurance throughout the year. And that’s where the business benefits come in. Knowing that they work well matters continually and not just making sure they work at year end.

Know where you’re going to get the assurance from

There are many possible sources of comfort for the board to draw on. Internal audit is an obvious one. To a degree, external audit review of certain controls should also help. But there are others too, especially if the business benefit is to be optimised. The annual review could be a good opportunity to do internal stakeholder reviews in order to garner opinions on how well risk management is working in the eyes of those who are part of it. The same with material controls: do people see them working in practice? Likewise, a risk culture survey might well surface issues – and we’ve seen this work well when the survey is anonymous and focused on the respondent’s day-to-day work rather than through overlygeneric questions. Management certification may well play a role, along with, for many financial institutions, the board looking more closely at how well the senior managers’ regime is working in practice. This all adds up to taking a good look at how the risk-controls-assurance mapping can be applied in a value-adding way.

Check how well the assurance sources are working

There’s not so much comfort to be gained from the assurance sources if the committee cannot be fully confident that those sources themselves are working well. The Code change might be the time to check that the review of the quality of internal audit work is as structured and probing as it might be: is it all about a check against international standards or is the insight coming from the organisation too? Does the committee really look at the nature and quality of external audit work on internal controls? And how does the executive satisfy itself that its second and third lines are working well?

Determine what evidencing and documentation you’ll need

As a starting point some legal advice might well be needed on what making ‘a declaration’ might mean: What are the risks? What evidencing and documentation might be required to mitigate the risks? And how does all this fit with ‘comply or explain’? The board will need to make a call on what the declaration entails. And ask management to set out what more is needed to align processes and evidencing with the agreed risk appetite. And to do this whilst not losing sight of the benefits that can be gained from the discipline that might come with making sure statements can be supported. It will be a question of balance, but one that needs discussing and pinning down rather than just being assumed or left illdefined.

So, there is a lot to think about – and these are just some of the questions to start asking.

We would not like to think that the new Code will generate big new demands or introduce complications and processes that bring little value. And companies and advisers alike must make sure that costs are kept under control and are justified. Hopefully, the run up to 2026 will not evolve into programmes that take on a life of their own and start distracting management from running the business and boards from keeping a strategic focus.

But it’s still better to start asking these questions now. This will help the board and executive set out a well thought through path to their first declaration. And give them time to really work through the benefits to the business rather than drift into what becomes a push for compliance as the deadline looms.

Psychological safety in boardrooms

Fri, 28 Jun 2024 12:11:54 GMT

Arran Heal is Managing Director at workplace relationships experts CMP, arran.heal@cmpsolutions.com , www.cmpsolutions.com

Journal Issue March 2024

Arran Heal looks at the importance of psychological safety in the boardroom on the performance of the organisation as a whole.

The term psychological safety was coined by Amy Edmondson at Harvard Business School to describe the ‘shared belief held by members of a team that the team is safe for interpersonal risk-taking. It describes a team climate characterised by interpersonal trust and mutual respect in which people are comfortable being themselves. There is a sense of confidence that the team will not embarrass, reject or punish someone for speaking up.’

Professor Edmondson’s research shows how organisations with higher levels of psychological safety perform better on almost any metric or KPI, in comparison to organisations that have a low psychological safety score. Working in an environment with low levels of psychological safety has an impact on confidence and wellbeing, and can lead to team members not wanting to ask for help and taking on too much. Low psychological safety gets in the way of team performance, innovation and learning, and can also significantly impact individual and team wellbeing and success. More supporting evidence has come from Google’s Project Aristotle, a two-year study into what makes a highperforming team which concluded that psychological safety was one of the five key dynamics involved.

So there is strong evidence of the value of psychological safety at organisational level ‒ but boards need psychological safety too. Senior teams have tended to have been less of a focus in organisations ‒ because psychological safety is technically about the ‘low-power actors’, making sure they’re able to raise concerns and questions without worrying about implications ‒ and board directors aren’t meant to need help with that.

A survey by the IMD management school among 1,000 directors, however, has found that fewer than half believed they were part of boards that were psychologically safe. Having high levels of accountability as a board member can lead to a sense of vulnerability: so self-protection comes first. But the essential job of boards is to have open, honest and mature conversations around organisational risks. The quality of conversations is the basis of strategy, dealing with the major challenges, ensuring the organisation is working, resilient and adaptable.

High-profile examples of boards which have demonstrated signs of a lack of psychological safety include Uber, where there have been media reports of domineering and disruptive behaviour by the co-founder in board meetings; the ‘messianic’ leader of WeWork who wouldn’t listen to criticisms of a failing business model; and Wirecard, where the board members weren’t prepared to listen to claims of fraud, leaving problems to grow and grow.

Poor quality conversations and a lack of feelings of mutual support are the basic indications of a lack of psychological safety in boards. And a faulty board ultimately means a faulty organisation. Very often the problem is ‘prozac thinking’ where no-one wants to be the negative voice, everything’s ‘great and getting better’. Questions and issues that are fundamental to the future progress of the organisation get smothered and there’s poor decision-making.

In a recent article in the Financial Times, the IMD pointed to some ideas for how an executive can gauge the existing levels of psychological safety in their group. Such as getting directors to think about behaviours that encourage or hamper open communication, then ending each meeting with a quick review or poll of what they’ve seen.

Or, by running ‘non-confrontational’ simulations observed by independent coaches, and then giving feedback to each other on issues like self-awareness. Another suggestion is using a ‘sociogram’, a visual representation of positions and connections within a board, with members having the chance to use free association and ‘uncover hidden patterns within the group … exposing the unconscious roles that have emerged within the board … particularly how individuals may have inadvertently contributed to sustaining the problematic role of a “hero” who can do no wrong’.

There is always a danger with any of these ideas, in that they encourage power games, the use of influence and alliances that only perpetuate problems and inhibitions. Instead, individuals need to have the sense of trust and security needed to speak for themselves: to keep on telling the truth.

One constructive way forward for boards initially is to make use of a Neutral Assessment. This is an informal process aimed at identifying and exploring the relationships of groups and situations of low psychological safety by understanding the perspectives of individuals involved. The process provides the opportunity for board members to voice their concerns and feel heard as individuals, while also generating actionable solutions to tackle any problems. A ‘no-blame’ report is compiled, summarising the information gained through participant interviews, anonymously, with recommendations for next steps.

There is also a specific Psychological Safety Index (PSI) tool that can be used to assess the current state of attitudes and relationships. The process involves mapping how board members perceive the level of psychological safety in their immediate team context, followed by a debrief on the results as the basis for change. Psychological safety is measured on four dimensions: the attitude to risk and failure (how permissible it is to make mistakes?); open conversations (whether and how often difficult and sensitive topics can be discussed openly); willingness to help (how likely board members are to offer and ask for help) and inclusivity and diversity (the degree to which people feel they can be all of themselves).

The results can be collated and used as a framework for further personal development: with open discussion of behaviours that may have caused problems in the past ‒ and, critically, a recognition of how open conversations and taking measured risks can build trust, and go some way to building a culture of respect and understanding within the team.

Directors should be role models when it comes to psychological safety, and that means adopting the following kinds of practices, and being visible in doing so: asking for upward feedback; acknowledging mistakes; being open to opinions that are different from their own; being approachable and encouraging reports to ask questions; and being seen to bring more of themselves to work, rather than always wearing a ‘professional mask’.

More fundamentally still, the senior team needs to have the ‘conversational integrity’ to have those all-important honest ‒ and sometimes difficult ‒ conversations. Organisations continue to acknowledge that people tend to rise through the ranks to senior manager and board level because of their experience and technical expertise rather than particular people or management skills. That means making sure people are listening to each other, are self-aware, curious and conscious of their impact on others; that they have the kinds of conversation skills that equip us to be resilient and adaptable, to appreciate the benefits of different views, different people.

The more senior and experienced the people involved in a team, the more likely there will be assumptions about capability. So there can be a vicious circle of low self-awareness. Company secretaries and leaders themselves need to have the courage to speak out on the importance of psychological safety at senior levels ‒ and the bigger picture in terms of building a more positive culture for the entire organisation.

Organisation-wide psychological safety

A culture of psychological safety in the boardroom is more likely when it is already a priority in the rest of the organisation ‒ and vice-versa.

There needs to be awareness of the issues and a focus on delivery from top to bottom, backed up by a pro-active strategy and close attention to practice:

1. Have a clear vision and strong mission to uphold your values and behavioural standards

When it comes to company culture, there are three key ingredients to ensure it is healthy: (a) A strong mission and vision that helps drive more clarity for people in terms of their roles and an aligned sense of purpose for employees. (b) The way in which behavioural expectations are aligned and supported by the organisation and modelled by the board members. (c) Making sure there is the prospect of professional and personal growth for everyone that seeks it. In this way, the overarching culture plays a role in encouraging the ‘pulling and sharing’ of feedback (rather than it needing to be ‘pushed’).

2. Create a ‘safe’ environment

People at all levels need to feel comfortable voicing their opinions and not fear being judged (or repercussions). The same ground rules for good conversations apply both within the boardrooms and outside, and need to be shared. These could be as simple as: Showing empathy. Allowing diverse perspectives (so that out of the box suggestions are encouraged and listened to). No interruptions. Welcoming all ideas equally. Never placing blame or judgement. Treating failures as opportunities to learn. Using the idea of ‘situational awareness’ to decide if ‘now’ is the right time to challenge. Using self-awareness to understand where ‘you’ are, and whether it is safe for you to speak up.

3. Develop curiosity and an open mindset

To break free of judgement and strengthen the relationship between board members, it’s important to have an open mindset. Often we look at things through our own lens, but approaching them from a different angle can help bring perspective.

In order to develop an open mindset at the workplace: Encourage the sharing of feedback. Help individual board members to learn how to best respond to input from others. Rather than criticism, encourage senior team members to see feedback as a way to strengthen and build upon their ideas and processes.

4. Encourage the use of reflective listening

This is an important part of ensuring people feel valued and that they can contribute to the team. Ideas to improve listening include: Leaving phones at the door during meetings. Showing understanding by repeating what was said. Encouraging people to share more by asking questions.

5. Most importantly: lead by example

It is vitally important to ‘walk the talk’ to develop psychological safety across the workings of an organisation, to managers and their reports.

Having a person to look up to, learn from and have as a role model, could be considered one of our fundamental needs. We conform to the behaviours around us, to develop a sense of security ‒ because we fear being humiliated or ostracised.

As a principle, anyone in a position of responsibility should set an example for the rest of the company. This is applicable from senior management down to team leads and managers. If introduced in the right ways, the set of behaviours should become a norm across the company.

Ask for upward feedback.
Acknowledge your mistakes.
Be open to opinions that differ from your own.
Be approachable and encourage reports to ask questions.

2024 AGM trends in Europe

Tue, 25 Jun 2024 08:06:26 GMT

WTW's analysis highlights trends in executive remuneration policies and proxy advisor recommendations/voting results for all remuneration resolutions for companies listed in the top indices of twelve European countries.

May contain lies

Mon, 24 Jun 2024 08:29:30 GMT

Alex Edmans is Professor of Finance at London Business School. This article is taken from his book ‘May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases – And What We Can Do About It’ which was published by Penguin Random House on 25 April 2024.

Journal Issue May 2024

In an extract from his recent book, Alex Edmans explains why misinformation affects us all and how our intrinsic biases impact on our understanding.

The sweat was dripping down my face as I awaited my grilling in the UK House of Commons. I’d been summoned to testify in front of the Select Committee on Business. This was a group of MPs who, infuriated by a couple of high-profile scandals, had launched an inquiry into corporate governance.

In my day job as a finance professor, I’m used to being interrogated by students in lectures, journalists in interviews, and executives in workshops. But being probed by MPs on live TV and having your testimony transcribed as public record is another level, so I was feeling pretty nervous. I got to the House of Commons early and sat in the session before me, burying my head in my notes to swot up on every question the Committee might ask.

My ears pricked up when a witness in that session mentioned some research that sounded noteworthy. It apparently found that companies are more successful when there’s a smaller gap between the pay of the CEO and the pay of the average worker. I was intrigued, because my own research shows that employee-friendly firms outperform their peers. My studies don’t focus on pay, but this new evidence appeared to complement my findings. For many years I’d been trying to convince companies about the importance of treating workers fairly, and this looked like another arrow to add to my quiver. I wanted it to be true.

If my 20 years in research has taught me anything, however, it’s to not accept claims at face value. I pulled up the witness’ written statement and saw they were referring to a report by Faleye, Reis, and Venkateswaran. But when I looked it up, it seemed to say the exact opposite: the higher the gap between CEO and worker salaries, the better the company performance.

I was confused. Perhaps my nerves meant I’d misunderstood the study? After all, academic papers aren’t known for their lucidity. Yet their conclusion was right there on the front page and as clear as day: companies do better if they have greater pay gaps.

It then dawned on me what had happened. The witness statement actually quoted a half-finished draft by Faleye, Reis, and Venkateswaran that was three years out of date. I was looking at the published version, after it had gone through peer review and corrected its mistakes – leading to a completely opposite result.

The witness in question was from the Trades Union Congress, which has a strong public position against pay gaps. In 2014, they published a report declaring that ‘high pay differentials damage employee morale, are detrimental to firm performance [and] contribute to inequality across the economy’. So they may have jumped on this preliminary draft, without checking whether a completed version was available, because it showed exactly what they wanted.

In the corridor afterwards, I told the Clerk to the Select Committee about the tainted evidence. He seemed appalled and asked me to submit a formal memo highlighting the error. I did so, and the Committee published it. Yet the Committee’s final report on the inquiry referred to the overturned study as if it were gospel. It wrote ‘The TUC states that “There is clear academic evidence that high wage disparities within companies harm productivity and company performance’’’ – even though the TUC’s statement was contradicted by the very researchers they quoted. Partly due to this claim, the report recommended that every large UK company disclose its pay gap, and this eventually became law.

The takeaway I’d like to draw is nothing to do with pay gaps – whether they should be published, or whether large gaps are good or bad. Instead, it’s to stress how careful we need to be with evidence.

This episode taught me two lessons. First, you can rustle up a report to support almost any opinion you want, even if it’s deeply flawed and has subsequently been debunked. A topical issue attracts dozens of studies, so you can take your pick. Phrases like ‘research shows …’, ‘a study finds …’, or ‘there is clear academic evidence that …’ are commonly bandied around as proof, but they’re often meaningless.

Secondly, sources we consider reliable, such as a government report, may still be untrustworthy. Any report – by policymakers, consultancies, and even academics like me – is written by humans, and humans have their biases. The Committee may have already felt that pay was too high and needed to be reined in, which is why they launched the inquiry to begin with.

Importantly, we’re all affected by research even if we never read a single academic paper. Each time we pick up a selfhelp book, browse through the latest Men’s Fitness, Women’s Health or Runner’s World, or open an article shared on LinkedIn, we’re reading about research. Whenever we listen to an expert’s opinion on whether to invest in crypto, how to teach our kids to read, or why inflation is so high, we’re hearing about research. And information is far broader than research – our news feeds are bombarded not only with ‘New study finds that …’ but also anecdotes like ‘How daily journalling boosted my mental health’, hunches such as ‘Five tips to ace your job interview’, and speculation like ‘Why we’ll colonise Mars by 2050.’ Blindly following this advice, you could find yourself sicker, poorer, and unemployed.

You might think that the solution is simple – to check the facts. And this is indeed what people do, but only when it suits them. If I share a study on LinkedIn whose findings people don’t like, there’s no shortage of comments pointing out how it might be flawed – exactly the kind of discerning engagement I’m hoping to prompt. But do I see the same critical thinking when I post a paper that finds their favour? Unfortunately not; they lap it up uncritically.

Why do we leave our wits at the door and rush to accept a statement at face value? Sun Tzu’s The Art of War stresses how you should ‘know your enemy’ before drawing up battle plans. So in a new book, May Contain Lies: How Stories, Studies, and Statistics Exploit Our Biases – and What We Can Do About It I start in Part I (‘The Biases’) by learning about our enemy. It takes a deep dive into the two psychological biases that are the two biggest culprits in causing us to misinterpret information.

The first is confirmation bias. We accept evidence uncritically if it confirms what we’d like to be true, and reject ‘inconvenient truths’ out of hand because we don’t want to believe them. Confirmation bias is particularly problematic for topics such as politics, religion, and climate change, where people have strong existing views. But for many day-to-day decisions, we don’t have a prior opinion.

That’s where the second bias comes in – black-and-white thinking. We’re wired to think that something is always good or always bad, when reality is often shades of grey. Most people think ‘protein’ is good. You learn in primary school that it builds muscle, repairs cells and strengthens bones. ‘Fat’ just sounds bad – surely it’s called that because it makes you fat? But ‘carbs’ aren’t so clear-cut. The Atkins diet went viral because it preyed on black-and-white thinking, telling people to minimise carbs. That’s far easier to follow than advising them to ensure carbs are 45‒65% of their daily calories, which would force them to calorie-count. If Atkins’ diet had recommended eating as many carbs as possible, it might still have spread like wildfire as that too would have been easy. To pen a bestseller, Atkins didn’t need to be right. He just needed to be extreme.

Part II (‘The Problems’) studies the consequences of these biases. They lead us to climb the Ladder of Misinference shown below:

We accept a statement as fact, even if it’s not accurate – the information behind it may be unreliable, and may even be misquoted in the first place. We accept a fact as data, even if it’s not representative but a hand-picked example – an exception that doesn’t prove the rule. We accept data as evidence, even if it’s not conclusive and many other interpretations exist. We accept evidence as proof, even if it’s not universal and doesn’t apply in other settings.

Importantly, checking the facts only saves us from the first mis-step up the ladder. Even if the facts are correct, we may interpret them erroneously, by over-extrapolating from a single anecdote or ignoring alternative explanations. The word ‘lie’ is typically reserved for an outright falsehood made deliberately, and to accuse someone of lying or calling them a liar is a big step. But we need to take a broader view of what a lie can involve, so that we can guard against its many manifestations.

‘Lie’ is simply the opposite of ‘truth’. Someone can lie to us by hiding contradictory information, not gathering it in the first place, or drawing invalid conclusions from valid data. The Select Committee’s claim that ‘The TUC states that …’ is strictly correct – but it’s still a lie as it suggests the TUC’s statement was true when the Committee knew it had been debunked. Lies also have many causes – some are wilful and self-interested; others are a careless or accidental result of someone’s biases; and yet more arise from well-intentioned but excessive enthusiasm to further a cause they deem worthy.

This wider definition of ‘lie’ highlights how regulation can’t save us from being deceived – it can only make someone state the facts truthfully; it can’t stop him claiming invalid implications from them. It’s up to us to protect ourselves. Even if a report has been signed off by the government, a paper has been published by a scientific journal, or a book has been endorsed by a Nobel Laureate, they should all carry the same health warning: ‘May contain lies’.

To distinguish between truth and lies, and gain a deeper and richer understanding of the world around us, we need to do more than just interpret statements, facts, data, and evidence correctly. Part III (‘The Solutions’) goes beyond the ladder. It moves past evaluating single studies to learning scientific consensus, and assessing other sources of information such as books, newspaper articles, and even our friends and colleagues. From learning how to think critically as individuals, we then progress to exploring how we can create smart-thinking organisations, that harness our colleagues' diversity of thought, overcome groupthink, and embrace challenge.

Now more than ever, we have easy access to scientific research by the world’s leading minds, yet it’s drowned out by fallacies, fabrications and falsehoods. Knowing what to trust and what to doubt will help us make shrewder decisions, comprehend better how the world works, and spread knowledge rather than unwittingly sharing misinformation. This in turn allows us and our families to lead healthy and fulfilling lives, the businesses we work for and invest in to solve the world’s biggest problems in profitable ways, and the nations we’re citizens of to prosper and thrive. By recognising our own biases, we can view a contrary perspective as something to learn from rather than fight, build bridges across ideological divides to find common ground, and evolve from simplistic thinking to seeing the world in all its magnificence.

Corporate board directors: Latest findings from PwC’s Pulse Survey

Thu, 20 Jun 2024 07:52:46 GMT

Board members see strong consensus on future company vision, more than the rest of the C-suite. But directors see less consensus on how much the business model needs to change, whether the company has the right talent to execute those changes and how long it will take for that vision to become reality, according to PwC's June 2024 Pulse Survey.

IoD Consultation Paper on Code of Conduct for Directors

Tue, 18 Jun 2024 13:59:23 GMT

The Institute of Directors has published a consultation document on their Code of Conduct for Directors. The IoD are seeking views on the Code from the business community and general public by Friday 16th August 2024.

Global CFO Turnover Index

Tue, 18 Jun 2024 13:52:26 GMT

RRA share the latest CFO turnover data across listed companies globally. Each quarter, they provide the proportion of CFO departures and appointments globally, as well as trends on CFO appointments by gender, and whether CFOs are internal or external hires.

Risk in Focus 2024

Tue, 18 Jun 2024 13:40:13 GMT

Risk in Focus, the annual thought leadership research project from the Chartered Institute of Internal Auditors (IIA), analyses the top risks faced by organisations across Europe. It is an essential tool for internal auditors and audit committees, and a barometer of what Chief Audit Executives (CAEs) and others perceive as their organisations’ risk priorities for 2024 and beyond.

Board Monitor USA 2024 - Navigating shifting sands: Six ways boards are reshaping their processes to thrive now

Fri, 14 Jun 2024 13:45:16 GMT

This study draws insights from two Heidrick & Struggle surveys of CEOs and non-executive directors that garnered 3,176 and 2,653 respondents and the analysis of Fortune 500 2023 board appointments.

The future charity chair

Fri, 14 Jun 2024 07:23:52 GMT

A research project looking at the essential attributes that charity Chairs of the future will need to embrace.

Governing cyber risk: Analysing the Government’s proposed Cyber Governance Code of Practice

Thu, 13 Jun 2024 13:41:16 GMT

With the increasing use of emerging technologies across organisations, boards need to ensure technology implementations are appropriately governed, and the associated risks are managed and mitigated. Avik Chandra analyses the Government's proposed Cyber Governance Code of Practice and outlines your next steps for stronger cyber governance.

The state of AI in early 2024: Gen AI adoption spikes and starts to generate value

Mon, 10 Jun 2024 07:47:37 GMT

As generative AI adoption accelerates, survey respondents report measurable benefits and increased mitigation of the risk of inaccuracy. A small group of high performers lead the way.

Are you ready for the new QCA Code?

Thu, 06 Jun 2024 07:29:59 GMT

Does your company apply the QCA Corporate Governance Code (QCA Code)? If so, are you aware it has been revised for accounting periods beginning on or after 1 April 2024?

Midyear observations on the board agenda

Wed, 05 Jun 2024 07:39:38 GMT

Based on KPMG's ongoing work with directors and recent conversations with business leaders and luminaries at the 2024 KPMG Board Leadership Conference — they offer observations and insights that may be helpful as boards calibrate their agendas for the second half of 2024.

The art of consensus on the board

Fri, 24 May 2024 12:29:59 GMT

Andy Davies is a Senior Partner with Kingsley Gate. Andy brings more than 25 years of leadership and executive search experience working across a range of publicly quoted, private equity-backed, and privately owned businesses. Working primarily at the board level within the sectors of Engineering & Manufacturing, Financial Services, and Technology, he has expertise in all leadership functions, including Chair and non-exec, financial, legal and company secretariat, as well as CEO and CIO.

https://www.kingsleygate.com/consultants/andy-davies/

https://www.linkedin.com/in/andydavies2/recent-activity/all /

Journal Issue May 2024

Andy Davies explores common reasons for boardroom rifts and offers guidance on how to ensure that healthy disagreement between board members doesn’t turn into a battle

Introduction

One of the most common reasons for disagreement amongst board members is the question of who really owns the strategy. Most boards think that the board collectively owns the strategy rather than the executive. It’s also not uncommon for there to be differences of opinion on objectives and what targets to set for the business.

At the same time, British boards tend to be pretty good at sorting stuff out and don’t wash their dirty linen in public. This means that vehement disagreements are not common, because good Chairs will have identified any pressure points and issues before the meeting and will have spoken with the parties concerned. However, when a boardroom conflict does make the headlines, it can cause serious reputational harm and even impact a company’s value.

Why board conflict can be a good thing

When it comes to agreeing to disagree, consensus does not mean that everyone has to be on board with every decision. A certain level of conflict is the sign of a well-functioning board and it’s normal for people to disagree. Moreover, a healthy boardroom discussion requires multiple perspectives with a willingness to challenge assumptions and forge divergent views.

This is backed by research which supports the notion that the avoidance of conflict can actually negatively impact board performance. A 2017 paper from the University of Amsterdam, Participant Observation Study of Non-Executive Board Dynamic (Heemskerk, Heemskerk and Wats), notes that there are three types of board conflict: task, relationship, and board-to-CEO. The authors argue that task and relationship conflict are interdependent. While high task conflict can be positive for board task performance and agility ‒ because it increases the quality of strategic decision-making and helps to hedge against groupthink ‒ it can also trigger relationship conflict, which in turn decreases board task performance.

But as the 2008 CPP Global Human Capital Report put it, conflict can also lead to positive outcomes. ‘Conflict has a bounty of positive potential, which if harnessed correctly, can stimulate progress in ways harmony often cannot.’

The role of the Chair (and the seating plan)

In the boardroom, it’s up to the Chair to provide a safe and supportive environment and to ensure that discussions take place over a reasonable period of time. The Chair is also

responsible for creating a culture where differences of opinion can be voiced and disagreement occurs in a respectful way so that communication channels between board members stay open.

A clear and unambiguous process will allow for concerns to be raised and dealt with through a company’s statutory channels and the Corporate Governance Code also provides a framework for conflict resolution. The constitutional framework of the Corporate Governance Code also offers a way of defining relationships and conflict-resolution procedures between shareholders. Whilst it’s inevitable that there will be differences of opinion, they need to be dealt with in an even-handed and timely manner.

According to a 2017 report by The Chartered Governance Institute and Henley Business School, Conflict and Tension in the Boardroom , there are also practical steps that can be taken in the boardroom to reduce the potential for conflict. Take seating arrangements, for example. Simply sitting opposing members next to each other rather than opposite can help to prevent tension from escalating. Similarly, calling a time-out via a strategically timed coffee or lunch break can defuse tension and cool heads, while halting discussion on a contentious issue and bringing it back to the table later once greater information or clarity have been provided can play an important part in conflict avoidance.

But when major disagreements cannot be avoided, what no company wants is for them to made public, with the risk of damage to their corporate reputation and even to their share price. Nevertheless, it does happen. Here are some examples of headline-grabbing boardroom bust ups in recent years.

Scottish Mortgage Investment Trust – corporate governance row

In March 2023 it was announced that Fiona McBain, the Chair of Scottish Mortgage Investment Trust, one of the UK’s biggest tech investors, would stand down after a corporate governance row with one of the company’s non-execs, Professor Amar Bhidé, who was asked to resign after he voiced concerns about share price performance, investment strategy and a number of other issues.

This is a classic example of what can happen when dispute management goes wrong. The associated media hype highlighted that Scottish Mortgage’s governance failed to find a way to resolve the boardroom dispute internally.

NextGen Healthcare – divisive battle for control of the board

In September 2021 NextGen Healthcare’s founder, Sheldon Razin, brought the wrong sort of attention to the business when he launched a proxy campaign for an alternative slate of director

candidates for board seats in an effort to shake up the top leadership, citing the company's poor financial performance under the direction of Chair Jeffrey Margolis.

Clearly this is not a good approach, as a board should be able reach a consensus on its own composition. It also led to speculation that the founder was more interested in getting his own people on the board than in acting for the greater good of the company.

London Stock Exchange Group – regaining shareholder confidence

Whilst newspaper headlines fade fast, potential damage to investor relations could have a longer-term impact. The high-profile departure of London Stock Exchange Group’s Chair Donald Brydon, who announced that he would not seek re-election following his involvement in a boardroom coup against the leadership style of CEO Xavier Rolet, was unusual as it involved a FTSE 100 business and one of the UK’s most respected Chairs. The feud risked impacting relationships with major investors as well as drawing criticism that important resources had to be diverted to resolve the issue.

The skill of the Chair in facilitating consensus-building

Whilst it’s fine to disagree, the board’s job is to make decisions together and to reach a consensus. The most pivotal and trusted figure when it comes to reaching consensus is of course the Chair, whose effectiveness depends much on their emotional intelligence and understanding of the range of different personalities on the board. It’s also the Chair’s role to manage the advanced choreography that can be necessary if unwanted conflict at board meetings is to be avoided and to try to ensure that potential obstacles are resolved in advance of the meeting rather than during it.

In cases where a board-division risks descending into drama, diplomacy is required and the importance of de-personalising exchanges and taking the emotion out of the situation cannot be overstated. Another strategy to defuse conflict is to remind individuals that the common purpose of the board – pursuing the goals of the company ‒ is greater than the needs of individual members. Ideally, the Chair will reach out individually to the parties concerned to first understand their positions before then considering how a consensus can be reached. In many cases, a one-on-one meeting to discuss contentious issues can resolve disagreements. A good Chair will also be skilled at working with non-execs to encourage them to back the executives ‒ although there will of course be times when a non-exec may not agree to do this.

Real personality clashes can be harder to resolve, however, and may lead to a breakdown in the relationship between individuals. In these situations, it can be unavoidable that an aggrieved party either resigns or is asked to leave.

The role of the company secretary in dispute resolution

The Henley research also noted that company secretaries can play a critical role in conflict resolution, describing them as the ‘unsung heroes’ of the boardroom. ‘Company secretaries often find themselves in the position of being a sounding board for the worries and concerns of executives, non-execs and Chairs. They can act as a confidente for board members and smooth the edges of tensions in the boardroom.’

Company secretaries also have an important role to play as key advisers on matters of corporate governance. One of the reasons that dispute processes are so important is that they provide all parties with an agreed and prescribed pathway to resolution. In FTSE 250 companies and smaller businesses, secretaries often have a dual role where they also act as general counsel. As such it’s within their remit to assist the Chair and to intervene in the case of a board conflict or lack of consensus.

As the company secretary is normally responsible for organising board meetings and any general meetings, they can minimise the potential misunderstandings that may arise from a lack of timely information. And by helping to manage the information flow within the board and its committees, as well as between senior management and non-execs, a smooth pathway can be put in place ahead of board meetings. It’s also important that directors have enough time to fully absorb the information and, if necessary, do extra research.

Finally, the company secretary is there to document everything that has been said, and to capture the tone and intention of conversations, which is important as the process validates individual viewpoints and by doing so can ease tension. The process also ensures all opinions are taken into consideration in a way that’s transparent and clear for anyone who was not present on the day.

Conclusion

Unprecedented diversity on today’s boards brings with it a greater multiplicity of perspectives which also stimulates resilience and agility. At the same time, whilst increased diversity and new viewpoints can improve the depth and quality of board discussions, they can also increase the risk of disagreement.

And it’s not just diversity of thought and different viewpoints and perspectives that are at play. According to research we commissioned from FT Longitude of the Financial Times Group, nearly three-quarters (74%) of senior executives say that their values and beliefs often influence the way in which they make decisions. Here again, albeit at a more personal level, board diversity whilst an asset, can complicate consensus.

AI: The New ESG?

Thu, 16 May 2024 13:57:15 GMT

Key considerations from WTW for private asset managers and their financial and executive liability insurance.

Global CEO Turnover Index

Thu, 16 May 2024 11:48:38 GMT

RRA share the latest CEO turnover data across listed companies globally, including the proportion of CEO departures and appointments globally, as well as trends on CEO appointments by gender, tenure, and whether CEOs are internal or external hires.

2024 Q1 Audit committee newsletter: Prepare for your next meeting

Fri, 10 May 2024 11:47:21 GMT

Each quarter PwC provide highlights of trending financial reporting topics, emerging regulatory and standard setting matters, and updates on current governance topics.

Directors Quarterly: April 2024

Wed, 01 May 2024 11:46:13 GMT

KPMG's April Directors Quarterly provides a boardroom lens on Gen AI, a financial reporting update, Latino representation on boards, and tapping the value of independent directors.

Embracing AI governance

Tue, 30 Apr 2024 14:49:42 GMT

Arnaud Cave is a Director in the Corporate Governance & ESG team at FTI Consulting. He advises public and private companies on corporate governance and sustainability matters, with a focus on corporate reporting, stakeholder engagement, and the development of tailored governance frameworks.

Niamh O’Brien joined FTI Consulting following her Masters in Technology Law, where she specialised in AI, personalised pricing and data governance. Previously, she worked in policy and public affairs in the telecoms and technology sectors in London and Brussels.

Journal Issue April 2024

Arnaud Cave and Niamh O’Brien argue that proactive steps to AI governance are non-negotiable for companies and outline a framework for businesses to effectively manage the technology’s risks and opportunities.

AI holds immense potential to transform businesses and boost productivity through streamlined operations and personalised services. However, amidst the promise of AI, a pressing concern around governance has emerged.

As with all technology, companies must ensure their governance structures uphold ethical standards and mitigate risks fostering long-term success and trust in their AI initiatives. Effective AI governance will be key to ensuring AI’s responsible use, to maintain public and investor confidence and ensure regulatory compliance with new laws like the EU AI Act. In this article, we provide practical advice and considerations for business leaders who are looking to develop a robust AI governance framework.

Navigating AI’s risks

Businesses must establish clear AI guidelines to navigate its integration into operations and use by the workforce. This will be an important safeguard against potential errors and cyber vulnerabilities that can reverberate through financial markets, spark legal disputes and tarnish corporate reputations.

One example is AI-powered tools, like chatbots, which can inadvertently leak confidential data or provide inaccurate advice leading to customer dissatisfaction and potential legal liability. There are a number of recent examples of legal cases involving a company chatbot providing misleading information, resulting in litigation, regulatory repercussions and compensation.

To address these challenges, companies need comprehensive action plans covering various scenarios, including data privacy and security threats, mitigating biases and energy consumption concerns. Employees must act as AI’s stewards, understanding its risks and benefits, while senior leaders must adopt a holistic and multifaceted approach to consider AI inventories, their use cases, and an assessment of their implications on all stakeholders.

Legal scrutiny of AI

As businesses embrace AI, they need proactive governance frameworks to avoid reputational upsets, navigate escalating regulatory oversight and potential litigation. Under the EU AI Act, stringent compliance requirements await AI providers (developers) and users (deployers). Additionally, legal actions by individuals or NGOs loom large for flawed AI decisions.

Instances like the Writers Guild of America and Screen Actors Guild strikes highlight concerns about AI plagiarising creations, emphasising the urgency for copyright protections and workers’ rights. Such disputes may set precedents for labour battles arising from AI-driven content. Copyright lawsuits are only increasing and so businesses should observe how copyright applications are determined and changing EU legislative requirements to understand if there are any shifts to the current human-centric focus and compensation requirements.

Furthermore, although existing liability laws may address how AI's integration into products affects liability dynamics for businesses, the lack of practical cases and specific AI liability legislation may potentially lead to corporate disputes over fault attribution between companies deploying and developing AI.

Corporate governance must adapt to changing legal landscapes. For instance, New York's pioneering Local Law 144 of 2021 regarding automated employment decision tools mandates employers to conduct and publicly disclose annual impact assessments of AI systems in recruitment. Laws, like those appearing in Europe, are increasingly providing workers with greater protections such as prohibiting solely automated dismissals and requiring transparency of AI’s involvement in hiring.

The imperative for transparent disclosures and audits in AI practices is growing. Companies must develop adaptable governance frameworks to meet evolving regulatory demands and stay ahead of legal challenges.

Investor demands

As the regulations continue to evolve, investors will likely lead the charge in demanding robust governance structures for AI. Ensuring businesses create value through AI while effectively managing associated risks is paramount.

Governance expectations from the Chartered Governance Institute emphasise the importance of boards adopting coherent approaches to AI’s risks. The Norwegian pension fund, Norges Bank Investment Management, with managed assets over $1.4trn, expects board accountability, risk management processes and transparency to be built into AI practices.

Investor engagement, led by the Collective Impact Coalition for Digital Inclusion, is on the rise. With more than $6.9trn in assets under management, it pushes for technology companies to disclose their ethical AI commitments. One of the Coalition’s members, Aviva, outlined the potential to vote against management at AGMs if engagement by companies on the topic fell short.

As a tool for escalation, shareholders have also started to file proposals focused on AI. In October 2023, an investment trust for union members, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), with assets exceeding $12bn, submitted proposals against five entertainment companies pushing for transparency reports on AI’s ethical guidelines. In February 2024, Legal & General Investment Management and abrdn, two major UK fund managers, announced support for the resolution filed at one of these companies. Notably, two influential proxy advisors, ISS and Glass Lewis, have recommended shareholders vote for the AFL-CIO’s proposal in this instance.

While shareholder proposals are more prevalent in the US, demands for AI governance are universal, especially considering strict EU regulation.

Ensuring responsible AI governance

As regulatory scrutiny and investor interest rise, companies must address AI's ethical and governance concerns for sustained growth. Hence, AI has shifted from the domain of technology teams to senior leadership's agenda and organisational priorities, requiring transparent governance structures. FTI Consulting's Responsible AI Governance Report offers a proactive approach to future-proof corporate governance, strategy, risk management and reporting – which is summarised below.

To manage AI risks effectively, companies should consider the ESG double materiality concept, assessing AI’s potential impacts on the company's financial bottom line as well as wider society. This is particularly relevant to the nature of AI’s risks and also because of the potential synergies with the EU’s new Corporate Sustainability Reporting Directive (CSRD) – which requires that companies carry double materiality assessments and provide disclosure on material risks.

However, a critical challenge for responsible AI governance lies in unclear decision-making and responsibility for AI policies, necessitating clear escalation paths to senior leadership and, ultimately, the board. Again, leveraging existing ESG frameworks like the Taskforce on Climaterelated Financial Disclosures (TCFD) or the Taskforce on Nature-related Financial Disclosures (TNFD) can help effectively structure and communicate a business' approach to managing AI risks. Investors are familiar with the four-pillar approach covering governance, strategy, risk management, and metrics/targets.

Businesses can outline their responsible AI policy within these pillars, specifying ethical commitments, guardrails for employees and ensure clear oversight. It requires decisions on which committees or individuals are responsible for AI, how they are informed and how responsibilities on strategy, implementation, risks, and operations are assigned to senior executives and teams.

An integrated approach with a steering committee that includes the head of AI or the chief technology officer, general counsel, chief people officer, head of data protection and head of sustainability, may support companies in their holistic assessment of AI’s opportunities and risks.

Relevant knowledge and expertise among the board, executives and employees, engagement with external stakeholders and alignment with diversity, equity, and inclusion frameworks are essential for responsible AI governance.

Building the AI governance foundations

Companies should tailor their governance process to their own circumstances, but common principles exist that act as a foundation for responsible AI. These encompass data governance and protection, traceability, explainability, accountability, AI literacy, accuracy, fairness, transparency, security, safety, and contestability. As these are common features in global frameworks like the EU AI Act and US National Institute of Standards and Technology (NIST) AI Risk Management framework.

Building a commitment to responsible AI entails developing and disclosing a comprehensive policy covering these principles and the four governance pillars mentioned above. This policy should be effectively communicated internally to create awareness across the organisation, supplemented by adequate training where relevant.

The public disclosure of the AI policy should be supplemented by periodic implementation reports, integrated into annual or sustainability reports, to facilitate constructive investor engagement. Third-party audits of AI systems and public disclosures on their outcome will further strengthen the company’s commitment to ethical AI.

Finally, sharing industry best practice fosters ongoing improvement in policies and processes, ensuring a safer AI environment for all. These steps form an iterative loop for continuous improvement and adaptation to technological advancements and regulatory changes.

FTI Consulting’s Report on Responsible AI Governance is available here.

Navigating Corporate Governance under the EU AI Act

Tue, 30 Apr 2024 13:49:37 GMT

Odgers Berndtson examine how the EU AI Act is likely to take shape, and its implications for how boards and C-suite leaders manage corporate governance.

Spencer Stuart Director Pulse Survey: Specialized Directors

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Spencer Stuart's survey found that boards want directors with specialized knowledge and experience, but, with limited spots to fill and vacancies rare, they overwhelming prefer “best athletes” as directors, people who can contribute to boardroom discussions on many fronts.

‘So what?’ Has corporate governance become a mechanical process?

Tue, 16 Apr 2024 11:43:18 GMT

Grant Thornton discusses with Carole Cran the outlook for corporate governance in 2024, the changing environment audit chairs are facing, and the key findings from our annual Corporate Governance Review.

Early insights from FTSE 100 Directors’ Remuneration Reports - 2024

Fri, 12 Apr 2024 11:52:43 GMT

By the end of March, 60 FTSE 100 companies had published their 2023 annual report and accounts. This update from WTW, the first in their 2024 series, provides an analysis of key insights so far.

AIM 100 Directors’ Remuneration Report 2024

Thu, 04 Apr 2024 10:07:24 GMT

The latest BDO AIM 100 Directors’ Remuneration Report reveals a stark contrast to last year, where hefty bonuses and strong growth in C-suite remuneration packages were seen in the bounce back following the pandemic.

What boards need to know about the SEC’s climate-related disclosure rules

Mon, 01 Apr 2024 10:15:55 GMT

In PwC's report they highlight some of the most interesting elements of the final SEC rules in the context of what’s changed from the original proposal and the implications for their organisations.

Risk, reward and uncontrollables

Sun, 31 Mar 2024 13:58:16 GMT

hanskristianbryn@aol.com https://www.linkedin.com/in/hanskristianbryn/

carl@vitisolutions.com http://www.viti.solutions

Journal Issue March 2024

Hans-Kristian Bryn and Carl Sjostrom consider coping with 'dis-order' and how businesses should plan for such unpredictable and uncertain risks.

2024 will undoubtedly be another year we will look back at to recognise that the uncertainty faced at the beginning was of a different shape and magnitude to that at the end. There are elections for around 4bn people across 70 countries, wars and trade conflicts. Geopolitical risk is now regularly on the board agenda, joining climate, environmental, health, cyber and technological change, not least disruption by AI. In this article, we will focus on how management and the board may respond to these issues but from the angle of when uncontrollable factors become permanent features that may cause the layout of the chessboard to change.

Remuneration responses to longterm shifts of uncontrollable factors

Perhaps one of the best illustrations of how long-term shifts of uncontrollable factors require a different approach to that of ad hoc challenges can be found in compensation and benefits. Where a temporary market situation may lead to lower incentive pay-outs and even headcount reductions, a long-term shift will likely mean changes to reward strategy, processes and governance. For example, a long-term disruption to the logistics of moving goods around the world doesn’t just result in input prices going up and that decisions on how to pass on those costs need to be taken, but it may also require a change to how remuneration decisions are made, in particular how strategic shifts are rewarded. The most common long-term uncontrollable impacting reward is inflation, where prices move up as the purchasing power of money weakens. As it increases, inflation impacts remuneration in many different ways, notable being: first, balancing cost-of living increases to maintain employees’ standard of living against society’s demands on not fuelling inflation and shareholders’ increased costs; secondly, that wage inflation becomes more differentiating as scarce labour not only can, but increasingly chooses to, exercise its bargaining power; and, thirdly, that differences in inflation rates, such as those between countries or sectors, need to be managed. Inflation exposes a company’s weaknesses in relation to a range of variables like productivity and sourcing of inputs and expertise, which means that it becomes harder to paper over the cracks.

Variable compensation, like bonuses and long-term incentives, is even more sensitive to shifts in uncontrollable factors. It is not only impacted by the points above, not least as variable pay tends to be a function of the base salary, but most performance measures that determine the value of incentive outcomes are very sensitive to how uncontrollable factors are treated. This leads to frequent points of friction between board and management as to the common understanding of how performance is measured, in particular in terms of how changes to variables like inflation, currencies, regulations and supply chains are included or excluded from the calculations. Or to put it another way, when do executives and employees align with the experience of shareholders and when do they simply get paid for the jobs they do? The answer to that may seem straight-forward for many, but most boards that spend time on the question will recognise that it requires answers that are grounded in a reward philosophy which is clearly articulated and communicated with both participants and other stakeholders so that there is a common understanding. To address the potential impact of uncontrollables, companies should therefore consider reviewing:

The remuneration philosophy to ensure that there is a clear approach to uncontrollables and update remuneration policies accordingly;
Processes for setting salary budgets as well as both levels and performance targets for incentives; and
Communications with employees and other stakeholders.

Risk planning/management challenges – being prepared

From a business management and oversight perspective, the key question is clearly ‘so what can we do about it’? In fairness, none of us can do much to influence the underlying drivers of the geopolitical uncertainty or the resulting uncontrollables, so the focus therefore has to be on how businesses build resilience by planning and being prepared for when the risks crystalise.

The current risk planning approaches tend to have been developed for more benign contexts than what we are facing, hence changes will be required to incorporate the impact of uncontrollables.

Apply a scenario-based approach to planning and decision-making;
Incorporate multiple risks and their interdependencies – a good example is how geopolitical risks interact with economic risk both from a demand, cost, price and availability perspective;
Use a variety of distributions to fit the underlying characteristics of the risks and consider non-linear and non-symmetrical outcomes, eg a number of the risks that will be considered are likely to be binomial; and
A ‘probability times impact’ approach is unlikely to capture the true range of potential outcomes if the risk crystalises, as the impact will be best described as a range of outcomes.

Uncontrollables raise significant governance and oversight issues due to their inherent complexity both from a downside as well as opportunity perspective.There are therefore additional oversight implications to focus on in order to ensure that the governance arrangements remain fit for a world of ‘dis-order’. Specifically, we recommend to:

Review board and committee mandates to ensure that they incorporate appropriate tests and questioning of how new uncontrollables are evidenced in risk frameworks and performance measures for incentives;
Test policies for coping with permanent shifts – for example, implications for how we look at profitability, efficiency, elasticity of demand from inflation and other uncontrollables, and review whether any additional policies and processes are required to have a more comprehensive governance framework; and
Test processes, like those related to business cases, for how they incorporate responses to uncontrollables – such as the impact of nearshoring, shifting investments from high to low inflation countries, testing vulnerability of operations from cost-cutting and dealing with sudden pension surpluses.

They also find it easier to build ownership and understanding of the steps, and value, of preparing for adverse outcomes.

A Board Effectiveness Review: What Boards Can Learn from Looking in the Mirror

Thu, 28 Mar 2024 11:09:12 GMT

Egon Zehnder provides the keys to navigating today's demanding business landscape through a board effectiveness review.

Taking an ESG-infused approach to governance

Thu, 28 Mar 2024 10:46:35 GMT

Deloitte suggests that a changing world and shifting markets mean that financial institutions need to take additional steps to infuse ESG considerations into their governance frameworks.

Global Directors’ and Officers’ Survey Report 2024

Mon, 25 Mar 2024 11:19:58 GMT

The WTW Global Directors' and Officers' Survey Results Report 2024, aims to identify and analyse the top risks perceived by directors and officers worldwide, tracking shifts in risk priorities and uncovering emerging threats.

Shifting geopolitics and the role of the board

Thu, 21 Mar 2024 10:55:51 GMT

Every business will face unique challenges operating in a global environment, but KPMG provides several basic steps that can help boost every board’s effectiveness in helping the company navigate geopolitical risk and opportunities more systematically and cohesively.

6 Trends for Board Directors Shaping 2024

Wed, 20 Mar 2024 11:17:32 GMT

Spencer Stuart’s North American Board Practice recently convened a series of breakfast discussions with board directors about the challenges facing boards today, the changes we’re seeing in the boardroom, and how boards can prepare for the 2024 proxy season.

Board Evaluations: One Step Forward, One Step Back

Sun, 17 Mar 2024 10:53:49 GMT

A new Korn Ferry report finds that more boards are disclosing information about the annual evaluation process. But fewer of them are conducting individual director assessments.

PwC UK Investor Survey 2023

Tue, 12 Mar 2024 10:57:58 GMT

Transparency around sustainability risk and opportunity is key to investors’ decision-making. They want clear, consistent and comparable information on the material issues facing organisations, but PwC’s UK Investor Survey 2023 reveals improvements need to be made to close the reporting trust deficit.

The Expanding Remit of the Fortune 500 General Counsel

Mon, 04 Mar 2024 11:13:24 GMT

Fortune 500 GCs’ remits are expanding. Read on to learn how leaders in this critical role are adapting to face future challenges.

What Directors Think 2024

Sun, 03 Mar 2024 10:41:44 GMT

BDO USA, Corporate Board Member, and Diligent Institute surveyed 250 U.S. public company directors about the biggest challenges facing them this year.

2023 Hong Kong Spencer Stuart Board Index

Thu, 29 Feb 2024 11:05:13 GMT

The 5th edition of the Hong Kong Spencer Stuart Board Index examines emerging trends and issues in board governance, composition, diversity and structure for the constituent companies of the Hang Seng Index and Hang Seng Composite LargeCap Index.

The 2024 Audit Committee agenda and the questions investors should be asking

Wed, 28 Feb 2024 11:11:45 GMT

Drawing on insights from KPMG's Board Leadership Centre, interactions with audit committees and business leaders, and the FRC’s Audit committees and assurance: conversation starters KPMG highlight nine matters they believe audit committees should consider and have on their 2024 agendas along with areas investors may wish to probe.

Dentons 2024 proxy season guide

Fri, 23 Feb 2024 10:43:39 GMT

The 2024 edition of Denton's Securities and Corporate Finance group’s proxy season guide sets out legislative, regulatory and advisory developments in respect of corporate governance and annual disclosure matters.

The Next CEO: Global CEO Turnover Index Annual Report

Fri, 16 Feb 2024 10:34:57 GMT

In RRA's inaugural Global CEO Turnover Index Annual Report, you’ll find a detailed analysis of key trends in 2023—and what they mean for business in 2024 and beyond.

Global Corporate Governance Trends for 2024

Wed, 14 Feb 2024 11:00:38 GMT

For the ninth consecutive year RRA has identified key governance trends that will affect boards in 2024.

PwC 27th UK CEO Survey

Wed, 14 Feb 2024 10:32:56 GMT

The PwC 27th UK CEO Survey shows a heightened focus on the need to truly transform their organisations is dominating the business plans of UK CEOs.

What are investors thinking about ahead of the 2024 AGM season?

Thu, 08 Feb 2024 11:02:18 GMT

WTW carried out a series of interviews with a number of institutional investors and proxy agencies across Europe, to canvass their views on executive remuneration ahead of the coming 2024 AGM season.

2024 CFO Outlook Survey

Wed, 07 Feb 2024 10:20:19 GMT

BDO's 2024 CFO Outlook Survey shows that many CFOs share the sentiment that the year ahead seems full of unknowns, but they aren’t backing down, choosing instead to rise above the uncertainty and seek out new growth opportunities.

Joining forces for shareholder democracy

Wed, 31 Jan 2024 11:32:43 GMT

Peter Fowler is Chief Operations Officer at Lumi Global, the leading digital platform facilitating in-room, hybrid and virtual AGMs, investor and member meetings for the world’s largest corporations and membership organisations. He can be contacted at https://www.lumiglobal.com/

Journal Issue January 2024

Peter Fowler argues that despite the growth in shareholder democracy in 2023, there is a long way to go for true engagement between issuers and their retail shareholders.

In the past few months alone, the Government Digitisation Taskforce has called for a new shareholder ID system, aimed at providing companies with better insights into their investors. Meanwhile, the online investment service Interactive Investor wrote an open letter to FTSE 100 Chairs advocating for improved communication with investors throughout the year.

We’ve also seen retail shareholders stepping into the spotlight with newfound influence, thanks to companies making strides to boost shareholder rights by providing proxy voting.

Despite progress, significant hurdles remain on our journey toward achieving genuine shareholder democracy. The current landscape means businesses and shareholders continue to grapple with a complex web of red tape.

Collectively we are caught in a catch-22 scenario. On one side, many businesses remain hesitant to engage with retail investors due to common misconceptions about this group. On the flip side of the coin, companies looking to engage with retail investors face barriers and can't directly connect with their shareholders.

We delve into the difficulties facing businesses in bringing about true shareholder democracy and how the industry can work together to make this a reality.

The rise of the retail shareholder

The influence over major company decisions, once concentrated in the hands of institutional investors, has shifted dramatically. DIY investing apps have empowered individual retail investors, with their share ownership surging to 13.5%, marking a 32% increase since 2010.

Under the current share ownership system in the UK, when retail shareholders buy shares in companies through a broker or a nominee platform, the individual is not directly registered with their invested company.

Direct communication can only occur within the nominee platforms, but these platforms have no obligation to provide customers with information about the companies they invest in. Meaning that if they want to attend or vote at a company AGM, they must be appointed as a proxy; an extremely difficult process to navigate and results in the vast majority being excluded.

The motivations and expectations of shareholders has evolved, it's no longer solely about financial gain; instead, shareholders seek a platform to voice questions and concerns, but they are unable to do so.

If there was anything 2023’s AGM season taught us, it would be the importance of ongoing dialogue between the board and investors to understand and balance their wants and needs to prevent issues from spilling into the AGM.

With this in mind, it's not surprising that shareholders are finding themselves both disempowered and disconnected from the businesses they financially support. The current system isn’t just leaving retail investors in the shadows, it’s also causing businesses to miss out on some valuable advocates and partners.

Issuer-shareholder relationship at risk

The current format of the share ownership system not only curbs shareholders from having their voices heard but also prevents businesses from reaching out to invite them to company meetings.

Our Issuer Roadblocks Report interviewing over 200 Company Secretaries about the challenges they face inviting shareholders to AGMs, revealed that over half (60%) at public or listed firms holding meetings with over 500 attendees would like greater retail shareholder presence at AGMs. However, the desire for increased attendance runs headlong into complex challenges, meaning businesses are struggling to facilitate participation.

A third worry is about potential backlash if they fail to invite retail shareholders to the AGMs easily. However, they’re currently unable to adequately inform them before voting on resolutions. Many also worry that this lack of communication channels may lead retail shareholders to divest their shares.

At the same time, 43% admit to struggling to engage directly with their investors, facing barriers or challenges when accessing data held by intermediaries or brokers.

This lack of direct connection has ramifications on both ends. Not only are retail shareholders being locked out of meetings, but companies are being left uninformed about the identities of their investors and would like easier access to this information.

The convenience of investing through nominee platforms has inadvertently severed the direct link between companies and their retail shareholders. It’s no wonder in this case that shareholders admit to feeling uncertain when voting, the limitations of the current system are painstakingly clear.

Progress has been made – but there’s more to be done in 2024

While there is still a considerable journey ahead to achieve true shareholder inclusivity, one crucial step to including more shareholders is hosting hybrid meetings.

The reality is, hybrid meetings are essential for good governance. Companies can improve their relationships with stakeholders, enabling inclusivity before, during and after the live meeting. Investment platforms and registrars need to join forces with issuers to make this connection smoother.

The good news is that hybrid meetings are on the rise. Over three-quarters (79%) of global AGMs were either held hybrid or virtually in the first half of 2023, 26% higher than in 2021 (see https://bitly.ws/39V4P).

We’ve also seen retail shareholders stepping into the spotlight with newfound influence, thanks to companies like BlackRock, eToro, and Hargreaves Lansdown making strides to boost shareholder rights by providing proxy voting.

Moreover, initiatives facilitated by Lumi and involving M&S enabled thousands of nominee shareholders to attend AGMs for the first time through the UK’s first pilot project.

How can we bring about change?

We’re calling for industry-wide change to achieve true shareholder democracy. This involves encouraging a shift in board mindset, calling for updates to legislation and consensus across the industry among all parties in the proxy chain to work together.

There is a common misconception that retail investors attend AGMs merely to influence dividends or cause disruption. However, we found that the primary motivation for retail investors is to ask questions of the board, closely followed by a desire to make their voices heard. Just 29% want to influence dividends, showing financial gain is less important than influencing governance.

They are not the ‘wild west’ of investments, but rather a pivotal part of the landscape and it’s crucial for businesses to recognise the distinction between activist investors seeking to disrupt and those who want to express their views on important matters.

By recognising the potential of retail investors, businesses can leverage a variety of voices, allowing them to become more transparent, accountable, and successful. However, under current legislation, this communication is bound by red tape. There needs to be reform to share ownership to shape a new future for shareholder engagement.

We have seen more calls than ever for digitisation, such as those from the Government Digitisation Taskforce, spearheaded by Sir Douglas Flint.

We know that while legislative change takes time, immediate steps can and should be taken to necessitate the free-flowing information across the entire proxy chain.

We’ve seen from the progress made that by working together, we can open doors for retail investors, and this must become the industry standard. The future of shareholder engagement is one where inclusivity is prioritised, and barriers are dismantled, more needs to be done.

It highlights the potential when key players in the proxy chain work together to drive change. We're urging issuers, registrars, and investment platforms to come together and eliminate barriers for retail investors.

Companies must get ahead of this, embracing the critical role retail investors can play in shaping the future of business and work together to call for updated legislation and greater accessibility.

This article demonstrates the key findings within Lumi’s latest Report which can be found here: Issuer Roadblocks: Breaking down barriers to achieve shareholder democracy.

Private Equity Review 2023

Wed, 31 Jan 2024 10:49:40 GMT

Investor confidence rises after fallow period for private equity. Find out more about the key trends and deals from last year from Grant Thornton.

Nominating/Governance Committee in the Spotlight: Three Priorities for 2024

Wed, 31 Jan 2024 10:37:15 GMT

Through Spencer Stuart's extensive work with private and public companies of all sizes, they have identified three key focus areas for nominating/governance committees in 2024.

Directors Quarterly: January 2024

Wed, 31 Jan 2024 10:29:20 GMT

KPMG's January 2024 Directors Quarterly looks at 2024 board and audit committee agendas, an interview with the SEC chief accountant, financial reporting updates, and overseeing TPRM.

2023 Spencer Stuart S&P MidCap 400 Board Index

Mon, 29 Jan 2024 10:43:45 GMT

Spencer Stuart’s 2023 survey of S&P MidCap 400 boards finds an increased focus on appointing more top-level executives — active or retired CEOs, chairs, COOs and presidents — mirroring the trend at large-cap boards.

UK Corporate Governance Code 2024

Mon, 29 Jan 2024 10:42:41 GMT

The 2018 Corporate Governance Code was updated in January 2024 following a limited consultation which concentrated on a limited number of changes. The 2024 Code will apply to financial years beginning on or after 1 January 2025. The 2018 Code remains in place until this time. The 2024 Code is supported by revised guidance which will be published on 29 January 2024.

UK Corporate Governance Code 2024

Mon, 22 Jan 2024 10:15:05 GMT

The FRC has announced important, revisions to the UK Corporate Governance Code that enhance transparency and accountability of UK plc and help support the growth and competitiveness of the UK and its attractiveness as a place to invest.

2023 proxy season

Fri, 19 Jan 2024 13:34:45 GMT

This update from Norton Rose Fulbright summarizes current trends in governance and executive compensation, and includes recommendations on key issues in view of the upcoming proxy season.

ONS publishes report on ethnicity pay gap statistics

Mon, 15 Jan 2024 10:23:37 GMT

The Office for National Statistics (ONS) has released its findings on the ethnicity pay gap in the UK, using data from the Annual Population Survey which ran between 2012 to 2022. The ONS report analyses the differences in average pay between ethnic groups. The stark data confirms that the UK's ethnicity pay gap has persisted since 2012, as some ethnic groups continue to earn less on average than their White British counterparts.

CEO and board confidence monitor: A worried start to 2024

Sun, 14 Jan 2024 10:27:22 GMT

A recent Heidrick & Struggles survey of CEOs and board members at companies around the world highlights that they have little confidence in their organizations’ ability to manage what matters most.

Unlocking Sustainability Value

Fri, 12 Jan 2024 11:37:17 GMT

Andrew Hobbs is EY EMEIA Public Policy Leader. This article is a summary of his longer article which can be found here: How can effective governance unlock value from sustainability? | EY - Global

Andrew Hobbs outlines the key drivers that boards can use to successfully integrate sustainability into their business.

Corporate action on decarbonisation is essential if Europe is to meet ambitious sustainability targets, and the business value proposition for change is clear.

Yet there is widespread agreement that not enough is being done, and a tension between short-term profits and long-term value.

A new EY survey of 200 European corporate senior leaders found that those who were ‘Experts’ in sustainability governance had found ways to successfully unlock value and that better governance can lead to better results.

Back in 2015, the Paris Agreement, the legally binding international treaty on climate change, was adopted at COP21 and set targets to limit global warming to 1.5 degrees C. It was followed by the European Union’s Green Deal, providing a legislative framework and roadmap for a climate neutral Europe. Its mix of new and revised laws demand and support reduced emissions, sustainable food production systems, the repair, reuse and recycle of products and the reduction of reliance on raw materials.

Impact on business is significant. While there are new rules and targets to be met that are essential to maintaining the health of the planet, the transition to a low carbon, more sustainable economy is a major business opportunity, as companies supply the finance, goods and services to enable the global Net-Zero transition.

With a spotlight on sustainability, governance, as a vital part of the ESG framework, has an important role to play. In 2021 we launched the annual EY Long-Term Value and Corporate Governance Survey to explore how companies across Europe were strengthening their governance in response; challenging, supporting, driving and incentivising change.

The EY analysis of the 2023 results found that a small group of high-performing sustainability governance ‘Experts’ are driving both financial value and progress towards targets, compared with a long tail of ‘Beginners’ who still have much more to do:

Seventy-six per cent of ‘Experts’ are optimistic about their company’s revenue growth prospects over the next 12 months, compared with less than half (45%) of ‘Beginners’.
Over half of ‘Experts’ (52%) are ‘very satisfied’ with the progress they have made to date in achieving the climate targets that are part of their approach to environmental sustainability. That number drops to 13% for ‘Beginners’.

In summary the 2023 survey found:

Better governance supports better outcomes.
Further sustainability governance requirements are needed.
Systematic, accountable and authentic governance can unlock value from sustainability.

EY Long-Term Value and Corporate Governance Survey

The annual EY Long-Term Value and Corporate Governance Survey questions leaders from companies representing 26 industry segments across 15 countries. Twenty per cent are Chairs or non-execs of the board, 20% are CEOs, and the remainder are drawn from across the C-suite. Fifty per cent of respondents come from companies with revenue of more than €1bn, with the other half between €100m and €999m.

This year’s survey draws on the views of these 200 senior leaders to examine how corporate governance is evolving to embed sustainability into their companies’ strategies and approach to long-term value.

We created a sustainability governance score based on respondents’ assessment of how effective their governance was in six key areas ranging from harder issues (such as ‘incentivising ESG performance through executive compensation mechanisms’) to softer issues (such as ‘encouraging open and honest debate to ensure all board members are aligned on the company’s ESG priorities and approach’). Using these scores, we split respondents into those with more effective ‘Experts’ or less effective ‘Beginners’ sustainability governance and evaluated the approaches, benefits and challenges each group reported.

In the context of this article, we focus particularly on the climate change aspects of sustainability. While the majority of companies (72%) have made explicit commitments to support the UN’s Sustainable Development Goals most relevant to their business, climate change has been on the agenda for the longest, and there are greater expectations around companies having a mature approach.

1. Better governance supports better outcomes

Effective governance is instrumental in driving value-led sustainability, but short- versus long-term tensions persist.

Businesses have a critical role to play in driving the urgent change needed to meet sustainability targets and there are financial benefits:

‘Companies that execute on their sustainability strategy (whether in operating model, products, support functions, or talent) do not just create more value for our planet and society,’ says Julie Linn Teigland, EY EMEIA Area Managing Partner and EY Global Leader – Women. Fast Forward. ‘They are also more likely to capture more financial value for the company and their shareholders’ – an approach that the global EY organisation calls ‘value-led sustainability’.

It’s clear from the latest survey that when a company is ‘Expert’ in integrating sustainability into its governance, it is not only more optimistic about revenue growth, but also more satisfied with progress against climate targets.

Success, however, does depend on the ability to manage the continued tension between short-term priorities and long-term value. The need to drive the sustainability agenda has added a new layer of complexity when it comes to balancing short- and long-term business pressures.

This is particularly apparent when it comes to the critical dynamic between companies and shareholders. The survey found that 74% say their ‘company should address ESG issues relevant to their business, even if doing so reduces short-term financial performance and profitability’.

This aligns with the views of investors – 78% of those surveyed in the EY Global Corporate Reporting and Institutional Investor Survey believe the companies they invest in should address sustainability issues relevant to their business, even if it reduces profits in the short term.

Both camps, therefore, need to be aligned on the need to make the difficult decisions and trade-offs needed to protect and grow long-term value. At the same time, however, 64% of the respondents to this survey say, ‘We face short-term earnings pressure from investors, which impedes our longerterm investments in sustainability’.

The quality of engagement between boards, management and investors is a critical factor in addressing this tension, particularly in terms of reporting.

2. Further sustainability governance requirements are needed

Leading companies drive better outcomes, but recognise that the sustainability governance journey has further to go.

There is increasing disquiet among stakeholders that companies are not injecting enough urgency into addressing climate priorities. This growing impatience reflects a growing concern that a company’s statements about its intentions do not translate into action.

‘Experts’ are making greater progress than ‘Beginners’, but they also acknowledge that they still need to sharpen up the role of their board in meeting climate change targets.

3. Moving forward with sustainability governance

Focusing on board dynamics, remuneration and reporting can deliver a systematic, accountable and authentic approach.

This third theme is where some practical recommendations for readers to translate into their own situations can be found. Although many companies have put in place a wide range of structures to integrate sustainability into the board’s decision making, many respondents questioned whether sustainability is a systematic, intrinsic way of how it operates.

Only 7% of respondents felt that sustainability is integrated into board structures and decision-making.

EY recommendations based on the current survey

Sustainability needs both dedicated time, and dedicated experts.

The ‘Experts’ are those that go beyond putting good structures in place; they also devote enough time to sustainability and ensure that boards are diverse enough to bring new perspectives to the debate.

Eighty-three per cent of ‘Experts’ are effective at ‘managing the board agenda to ensure long-term ESG risks and opportunities are always discussed, not just near-term business issues,’ but this drops to 52% for ‘Beginners’.
Eighty-six per cent of ‘Experts’ are effective when it comes to ‘increasing boardroom diversity and ensuring new voices are given equitable speaking time to provide fresh perspectives on ESG topics,’ but this drops to 36% for ‘Beginners’.

Quality time spent by willing boards who have experience and skills in ESG topics is more important to progressing against sustainability objectives than formal structures such as sustainability committees. That means making sure that meetings are regularly scheduled, and that the people sitting around the table are those with expertise in the subject matter.

Remuneration policies must link to sustainability targets.

It’s also critical for boards to find ways to make their companies accountable for delivering on sustainability objectives, with KPIs that link to remuneration.

It is challenging to define ‘remuneration-grade’ KPIs for sustainability objectives – which constitute a meaningful proportion of total reward and help to hold management teams accountable. But there is a compelling case for doing so, and our survey found that ‘Experts’ are already doing this:

‘Experts’: 61% include ESG metrics as a significant element when setting the compensation of senior executives (with 34% as a limited element).
Beginners’: 29% make it a significant element (with 59% as a limited element).

Making a real impact requires a shift in mindset. C-suites, boards and remuneration committees need to be pragmatic and agile when establishing ESG-based KPIs that continue to evolve. They can also benefit from being more open and transparent with their stakeholders – ensuring they engage with them fully on this critical topic and share details of their sustainability journey.

An authentic and accountable approach to reporting.

Finally, it is critical for boards to take an authentic approach to reporting, with measuring systems that are easy to follow and KPIs that everyone understands. If delivering on climate targets is integral to the success of day-to-day operations, then ongoing education and simple, clear KPIs are essential. Creating good information and reporting systems, with dashboards, can enable boards to track progress and be accountable to stakeholders. This clarity of purpose could explain why the sustainability-governance ‘Experts’ are better prepared for the changing regulatory environment that will come into force with the EU’s Corporate Sustainability Reporting Directive (CSRD).

The constantly moving sustainability agenda is a challenge for European CEOs and board members. The risk is that a fluid and complex agenda causes some companies to become too reactive rather than strategic, or even to become paralysed with uncertainty about where to focus their efforts.

With the right governance, however, companies can zero in on the sustainability topics that matter most to the creation of long-term value: securing a successful future for their organisations while also safeguarding the future of the planet and its people.

The full Survey can be accessed here.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

Overseeing non-financial crises

Thu, 14 Dec 2023 12:45:30 GMT

Philip Sidney (ps@lintstock.com) is a Senior Associate at Lintstock, a London-based corporate governance advisory firm specialising in board effectiveness reviews. To read Lintstock’s report to the All Party Parliamentary Corporate Governance Group in full, please visit lintstock.com/boardoversight

Journal Issue December 2023

Philip Sidney reports on Lintstock’s latest research report for the APPCGG which assesses the impact of the Covid-19 pandemic and the war in Ukraine on UK boards.

The events of the past three years have arguably posed the greatest challenge to corporate boards since the global financial crisis, with the important difference that the principal shocks between 2020 and 2023 – namely the Covid-19 pandemic and the outbreak of war in Ukraine – have been notably non-financial in nature. Whereas the key learnings from 2007-2008 centred on the management of financial risk, these non-financial crises have implications for boards in a much broader range of areas: supply chain disruption, geopolitical tensions, employee well-being, digital transformation, social responsibility, environmental awareness and many more.

For Lintstock’s latest report for the All Party Parliamentary Corporate Governance Group (APPCGG), we wanted to get a sense of the impact of the coronavirus pandemic and the Ukraine war at the top of UK corporates – accordingly, we asked the boards of leading UK companies about the long- term implications of the events of the past few years, and how they would change corporate governance going forward. Over 150 Directors and Company Secretaries participated, and we are grateful to them for their engagement and their candour.

The resulting study – Board Oversight in Difficult Times: Out of Covid into War – explores the six topics that stood out most prominently in the feedback we received. There was plenty of diversity of thought here, and a spread of (sometimes forthrightly expressed) opinions, which we hope provides boards, governance professionals, regulators and legislators with useful insight into where corporates are at the present time.

1. Risk management

While we had some clients who were lucky enough – or insightful enough – to have both a pandemic and a war on the European continent on their risk registers, it is fair to say that many boards were blindsided by Covid and the Ukraine war.

The past few years have clearly left boards with a lot to think about on the topic of risk management: there was a sense that focus on the minutiae of risk registers and matrices had left boards unsighted on their vulnerability to external shocks, and it is clear that boards have renewed their focus on risk – one FTSE 250 Chair suggested that boards should ‘think more intensely, more imaginatively and more thoroughly’ about potential threats. There was a spread of opinion on the degree to which boards should try to ‘expect the unexpected’ in spotting the next big risk: one FTSE 250 SID felt that boards should make sure they are looking down the right ‘end of

the telescope’ on risk, and not cast the net too wide. In their words, ‘just as no-one sees the car that knocks them down, boards are not crystal ball merchants’.

Having worked through a real-life example of a catastrophic risk materialising, boards are now focusing on their internal capabilities so that they can see off their next threat.

2. Resilience and agility

The crises of the last few years have underlined how swiftly and severely events can overtake companies – and the sentiment among the board members we heard from was that this will continue. A FTSE 100 non-exec told us that ‘the mindset has changed to “do not expect a return to lasting stability”’. Accordingly, agility and resilience were seen as the key hallmarks of a successful company going forward.

Lessons have been learned from Covid in this respect: the pandemic forced companies to be more agile and adaptable, which was then valuable when confronted with the disruption caused by Russia’s invasion of Ukraine. Boards got used to making quick decisions under considerable pressure, and companies become adept at implementing those decisions at pace. As well as being swift-footed enough to respond

to shocks, organisations also need to have the resilience to withstand those shocks in the first place; the best-positioned companies going forward will be those that are sufficiently flexible to move quickly when needed, but also have sufficient financial, material, and human resources to hunker down and ride out the storm when necessary.

3. Technology and AI

It will not be news to anyone that Covid profoundly impacted companies’ digital capabilities and use of tech. Lockdown restrictions imposed a technology transformation virtually overnight, and those who failed to adapt – as one FTSE 100 non-exec pointed out – went to the wall. Nowadays it is more than ever the case that technological capability is a hallmark of a successful company.

That said, the commentary we received suggests that the growing dependency on IT and digital is a double-edged sword – having plugged into the digital revolution, companies are committed to continual investment or risk falling behind their rivals, and cyber security is also a prominent concern.

A number of board members identified AI as a significant risk – boards are conscious that AI could change the business paradigm but are wary of whether it will be to their companies’ advantage or detriment. We spoke to one Company Secretary whose organisation had incorporated AI into their pricing mechanisms, who told us that AI was both crucial for the survival of their business and ‘terrifying’ in its risk implications.

4. ESG

The increase in focus on ESG was one of the governance developments of the past few years that came up most frequently – as one FTSE 250 Chair put it, ‘sustainability has rightly taken centre stage’. Success is now measured across a broader range of metrics, with emphasis on stakeholder value as well as shareholder value and greater consciousness of companies’ social and environmental responsibilities. There is, as a Small Cap non-exec indicated, ‘a greater weight on being compassionate, and a good citizen.’

That said, there was resistance among many respondents to the focus on ESG, and in particular to the reporting burden it places on businesses. It’s clear that the requirements and practices in this area are still maturing in the UK, and striking the right balance can be difficult – it has been interesting to us to see many of our international clients questioning whether they went too hard, too fast with respect to their public ESG commitments.

5. People

Companies’ relationships with their employees was another area of intense focus in the feedback we received. Covid brought boards closer to their organisations’ workforce, and that appears to be continuing – as a FTSE Company Secretary put it, there is ‘a strong sense that we are all in this together’.

Covid has rewritten the contract between companies and the workforce, but it has also recalibrated employees’ expectations around working practices. Working from home is an ongoing point of tension, and in particular there is concern that lack of time spent among colleagues in the office is having a pronounced effect on younger employees, leading to a ‘demonstrable gap in early talent’ in the words of one FTSE 250 executive.

The challenges in this area are sharpened by the tightness of the labour market at present –the war for talent ‘has become an arms race’, as one FTSE 100 Company Secretary said.

Attracting, retaining and developing talent typically topped boards’ lists of HR priorities before the pandemic, and the pressures in this area mean that employee engagement will need to remain high on the agenda.

6. The UK environment and policy

One of the most striking aspects of this year’s study is the level of pessimism from respondents with regard to the UK business environment. Strong opinions were expressed on the regulation and compliance burden that companies face – the term ‘nonsensical meddling’ was used by one FTSE 100 Director – and regulatory and political uncertainty that makes long-term planning impossible: a FTSE 100 non-exec decried ‘thoughtless game-changing policy leaps which overnight blow up business models’.

In their commentary board members made reference to challenges around productivity, taxation, infrastructure and many more challenges, and stressed the impact that they have on the UK’s importance and competitiveness as a centre of finance and influence. This will be difficult reading for those with an interest in the success of UK plc, but it will hopefully provide food for thought for regulators and legislators as they work to make the UK attractive to external investment and talent.

Conclusion

So where do boards stand coming out of this period? Having managed their way through the shocks of Covid and Ukraine, boards are conscious of the complex and interconnected set of challenges they face in this era of non-financial crises. They are expected to oversee their organisations’ preparedness for a huge variety of threats – among them geopolitical aggression, supply chain failures, political instability and climate change, with the threat of reputational consequences if they don’t get it right. As one FTSE 100 non-exec put it, ‘there is a bewildering range of risks’.

The sense we got from this study, however, is that boards are now battle-hardened and conscious of banking the lessons from the past crises in order to make it through the next one – whatever it may be.

Female Force 2025: Leveraging Female Leadership

Thu, 14 Dec 2023 09:38:06 GMT

The Female Force 2025 report, in partnership with Bain & Co. and Egon Zehnder, strives to narrow the growing disparity in leadership between genders.

The path to the chair: Insights from FTSE 100 chairs on finding - and succeeding in - a chair role

Wed, 13 Dec 2023 10:01:21 GMT

The demands of public company chairmanship have grown exponentially. Heidrick & Struggles had discussions with a number of serving chairs to offer insights on how to prepare for the role.

UK corporate governance reform is delayed again - what does this mean for Heads of Internal Audit?

Wed, 13 Dec 2023 09:26:50 GMT

In May 2022, the UK Government published its proposals for corporate governance reform in Restoring Trust in Audit and Corporate Governance. Primary legislation is required to establish ARGA however, this was not included in the King’s Speech on 7 November 2023 and will not form part of the Government’s programme for the current parliamentary session. What does this mean for Heads of Internal Audits?

Deciphering the Indian Boardroom: Russell Reynolds’ 2023 Board Analytics and Insights

Tue, 12 Dec 2023 09:44:24 GMT

Key findings from RRA’s inaugural analysis of board demographics for India’s top 200 NSE listed corporations.

WTW Director remuneration in FTSE 250 companies – 2023 report

Thu, 07 Dec 2023 09:58:58 GMT

WTW's recap of the 2023 Annual General Meeting season plus pay trends for executive and non-executive directors for companies in the FTSE 250.

Shearman & Sterling's Annual Corporate Governance & Executive Compensation Survey

Thu, 07 Dec 2023 09:51:51 GMT

Now in its 21st edition, the survey provides a review of key corporate governance trends, along with a comprehensive examination of the corporate governance and executive compensation practices of 100 of the largest U.S. public companies.

On the 2024 board agenda

Thu, 07 Dec 2023 09:41:02 GMT

Drawing on insights from KPMG's survey work and interactions with directors and business leaders, they highlight nine issues to keep in mind as boards consider and carry out their 2024 agendas.

The Science and Art of Good Corporate Governance: A Guide for Entrepreneurs

Wed, 06 Dec 2023 09:31:05 GMT

This jointly authored guide by the Business Development Bank of Canada (BDC) and Dentons is an informative and insightful primer that covers such fundamentals as: defining what corporate governance is, why it matters, and how it evolves with growth and best practices for successful corporate governance.

Board Chairs’ New Year’s resolutions for 2024

Tue, 05 Dec 2023 15:09:58 GMT

John Harte (jh@integritygovernance.com +44 774 163 2563) is managing partner of Integrity Governance, a partnership of specialist governance advisers to boards, owners and CEOs around the world. www. integritygovernance.co.uk

Journal Issue December 2023

John Harte looks at the role board Chairs need to play in 2024, in a continuing climate of volatility, uncertainty, complexity and ambiguity.

Every New Year brings opportunities and challenges for boards. Political uncertainty and geopolitical tensions are set to be big issues in 2024. This is due to elections taking place in the UK, USA, European Parliament and Taiwan. In fact, boards now lead in a world that has not been as politically uncertain since 1938. Then there are continuing conflicts in Ukraine and Gaza, plus the threat of North Korea and China.

The global economy is anticipated to grow at a slower rate than expected, particularly due to concerns over China’s economic prospects, and there’s going to be challenges for organisations around the fast pace of technological disruption.

All of these factors mean that 2024 is set to be more of the same, with volatility, uncertainty, complexity and ambiguity (VUCA) to be navigated by boards.

Those boards struggling to keep up need to recognise that the pace of change today is as slow as it’s going to be for the foreseeable future. The onus is on the pivotal role of the leader of the board – the Chair – to help the board plot a path through these uncertain times to business success.

Turn VUCA to their advantage

The Chair has a vital role to play in using the environment created by VUCA to their organisation’s advantage. This requires them to counter volatility with vision. To achieve this they should encourage the board to accept and embrace change, and have the vision to set a course through the chaos. As part of this the Chair must evolve the culture on the board, not only to set a clear vision, but to successfully meet the wider demands of VUCA.

Secondly, Chairs need to ensure there is understanding on the board in place of uncertainty. This requires them to encourage the board to listen and learn from stakeholders, understand their organisation’s capabilities to react to changing circumstances, and look at how this can play to their strengths. This should include experimenting with certain scenarios to see how they might play out.

The Chair should ensure that the board has courage in the face of complexity, to make bold decisions based on measured risk. It’s the only way for organisations to successfully move forward at this time and potentially benefit from new revenue streams.

Finally, in place of ambiguity, Chairs must foster a culture of agility and adaptability, not only on the board, but beyond to the management and the wider workforce. Doing so releases the potential of directors and employees to provide new ideas to help take the business forward, by engendering a curiosity and fearlessness to inspire creativity, innovation and continuous improvement. To accomplish this the Chair and the board must lead by example in demonstrating diversity of thought and ideas, as this will give confidence to the rest of the business to follow suit. However, it’s vital to realise that it’s only those boards that are themselves diverse which will have true diversity of thought.

Focus on board diversity and inclusion

Diverse boards deliver different thinking, a broader range of options and ultimately better decisions and outcomes. It’s not about political correctness it’s about addressing the views of so many stakeholders who no longer ask ‘why diversity?’ but now want answers to ‘please explain why not?’.

Diverse boards with an inclusive culture are more effective than those that aren’t. It’s time for a grown-up conversation on diversity rather than focus solely on the demographic aspect of it, which while important to address, is only a one part of the journey towards true diversity.

The Chair should look at the board through the prism of the five drivers of diversity – demographics, skills, experience, thinking styles and circles of influenceTM – and consider how well the current line-up matches up. If the board is not diverse in all these areas then action needs to be taken.

Create a culture of inclusivity where all are listened to

A big challenge for Chairs in 2024 is creating a culture where an individual from a different demographic, skill set, experience, thinking style or circle of influence on the board feels welcome, wanted, respected, listened to and valued. This means creating a culture of inclusion, so different perspectives are heard when it comes to decision making. Otherwise, diversity without inclusion will be a tokenistic illusion.

Additionally, it is easy to focus on the points raised by a vocal minority of directors. It’s only possible to deliver effective decision-making by taking on board different perspectives, in particular the quieter voices in the group, and making sense of them. The Chair must recognise this and use emotional intelligence to encourage all voices to be heard on the board and beyond, because this will help steward the creation of value. The New Year is an overdue opportunity to recalibrate the inclusiveness of our boards.

Identify blind spots in the boardroom/organisation

Chairs need to start the New Year asking themselves what are the blind spots on the board and for me personally? Often, they are areas outside of the skills, experience and understanding of directors and those within the wider organisation. These blind spots could be very costly for businesses in the medium- to long-term in areas such as cyber security and AI, for example.

Understand new technology

Chairs must gain a greater understanding of fast-evolving technology and its implications to board operations and that of their organisation, particularly in the areas of AI, cyber security, data and privacy. While they are not expected to be experts in technology, they should signpost boards to needing technical expertise, where appropriate. The pace of change in technology is accelerating and good Chairs will consider the approach to AI, the insight sitting around the board, plus the foresight to understand the forces of change. Good boards are already working on a code of conduct for AI and governance structures that ensures their approach is ethically human centric, with clear oversight, accountability and third- party assurance.

Focus on productivity

There needs to be a sharp focus on productivity against a backdrop of significant embedded cost inflation. In addition, the contentious impact of working from home (WFH) on productivity means that we need to think about ways of working to enable productivity. The productivity issue does not stop there. Board leaders need to think about the value added versus the cost of their governance processes, even down to productivity, effectiveness, and return on investment from their governance processes. If the Chair of the board is not leading a clarifying conversation about governance costs versus governance value, then we have to ask ... who is?

Focus on foresight and informed insight

In today’s uncertain world the ability to have foresight: the capability to anticipate and prepare for the future, and informed insight: the ability to interpret and respond to the present, have never been more important.

It is only by having foresight and insight live in the boardroom that boards will be well positioned to deliver successful decision-making and identify and act on new opportunities to provide long-term growth.

Therefore, it’s vital that Chairs ensure boards are focused on both of these lines of sight, and precedence is not given, as it often is, to oversight on the work of management, and also hindsight, looking back, at the expense of looking forward.

Think about the impact of uncertainty when risk planning – potential harms and opportunities

Difficult times faced by organisations over the last few years have highlighted the importance of boards to effectively understand and predict risk. The Chair needs to be at the heart of this – in supporting the board in understanding risk, setting the risk appetite, structure for risk management, and ensuring that it’s being mitigated, managed and monitored, along with challenging assumptions around it.

As part of an effective risk-planning process the Chair should highlight to the board that it’s not solely about avoiding losses, but in enabling value creation through looking at risk as an opportunity. Implemented appropriately risk planning can deliver a new opportunity, a competitive advantage, to drive long-term business success. After all, boards are charged to generate the best return from the capital of the company, which calls for forward thinking and the ability to anticipate the impact of uncertainty on outcomes.

Ensure role clarity

One of the most important tasks of the Chair continues to be ensuring role clarity for directors, because role clarity is at the heart of an effective board. Having a clear definition of roles for those on the board, particularly those between themselves and the CEO, is particularly vital if the board is to function well in an age of uncertainty.

Undertake board reviews to ensure it’s ‘fit for the future’

Chairs must focus on developing the board, the CEO and themselves to increase the capacity, capability and effectiveness of the board, and ensure that the board, the governance of the organisation and the leadership of the business are ‘fit for the future’. Regular reviews prompt a periodic re-examination of how ‘fit for the future’ the board or director is, enables a culture which is performance focused, and provides data to support improvements in their performance, enabling them to refine their approach.

Chairs need to take the lead in initiating regular reviews focused on the effectiveness and performance of the board, individual directors and the CEO. However, the Chair must ensure that the assessment is not undertaken as a tick box exercise and another task to strike from the governance to-do list. Effective board reviews are about far more than compliance.

Any review must be objective, so it’s advantageous that the Chair sources and appoints a highly experienced independent third-party assessor in this space, who is free from conflicts of interest, and can manage the whole process.

Once the review is complete the Chair should make sure that there is accountability for follow-up on the agreed actions, and informal catch-ups take place throughout the year to check on progress.

Take the lead on tough decisions

Chairs need to have the courage and integrity to take and lead the board through tough decisions. For example, deciding on whether to part company with the current CEO if they are not performing, possibly as the direct result of findings from a review, and take responsibility for a damaging issue that took place on their watch. Doing so will gain the respect of stakeholders and help the board steward the creation of value.

Focus on succession planning

Ensuring there is good succession planning for the CEO, committee Chairs, directors and their own role is a must for Chairs. The succession planning should be appropriate and relevant to the organisation and needs to be reviewed at least annually to assess progress and development based on the context of the board, the CEO and the organisation. During challenging times effective succession planning delivers an all-important smooth transition in the leadership of the organisation with minimal disruption and business continuity.

Those Chairs who want to add significant value to the boards they preside over in this VUCA world, and ensure an effective board in 2024, must acknowledge these proposed actions and make them their resolutions for the New Year.

The Independent Board Chair

Thu, 30 Nov 2023 09:54:01 GMT

Board leadership of U.S. companies is slowly evolving, shifting from a longstanding practice of combining the chair and CEO roles to increasingly separating the roles and appointing an independent chair. Spencer Stuart review the selection process, responsibilities and skills of effective Chairs.

Board Monitor Latin America 2023

Wed, 15 Nov 2023 10:48:25 GMT

Heidrick & Struggles 2023 Board Monitors for Brazil, Colombia and Mexico show that after tackling the socioeconomic uncertainty of the past three years, companies in Brazil, Colombia, and Mexico are looking forward to seeking a new phase of growth.

The purpose and effectiveness of board committees

Tue, 14 Nov 2023 11:25:03 GMT

hanskristianbryn@aol.com https://www.linkedin.com/in/hanskristianbryn/

carl@vitisolutions.com http://www.viti.solutions

Journal Issue November 2023

Hans-Kristian Bryn and Carl Sjostrom look at the roles of the Audit & Risk and Remuneration Committees and suggest ways in which committee performance can be enhanced.

The regulatory and governance landscape facing companies is becoming more crowded and changes in demands as well as expectations are putting more pressure on boards individually and collectively. Our 2016 article 1 raised a concern that the committees of the board often work in silos and we argued that a more collaborative approach would benefit both the Audit & Risk Committee (‘ARC’) and the Remuneration Committee (‘RemCo’). In this article we revisit the roles of the RemCo and the ARC (from a risk and governance perspective) highlighting areas that can be challenges for their respective Chairs and where we observe distinct differences between effective and less effective committee work.

As we noted in our previous article, the reason boards appoint committees to deal with matters such as audit, risk and executive remuneration is primarily to manage the board’s workload by dividing it so that the committees’ attention to more detailed matters free up time to focus on critical strategic issues. In addition to achieving time efficiencies, committees are also able to hone specialist knowledge and processes, which in turn allow them to address the increasingly complex regulatory and governance matters associated with their topics. Our previous discussion on how to take advantage of overlapping committee work illustrates the key tasks of the ARC and the RemCo:

The illustration shows that the overlap of agendas needs to be managed. For example, the risk appetite of the business should be used as an input to evaluating the executive reward and incentives to ensure that they don’t encourage actions and behaviours that can lead to exposures triggering breaches of the risk appetite.

Over the past decades, the roles of ARCs and RemCos have changed significantly, not least in response to the evolutions of governance codes and regulatory reform. However, the specificity of these changes has left little room for fundamental reviews of the purpose and structures of committee work. Committees should not be over-reliant on strong leadership from the Chair and we observe that, in particular, the following remain common obstacles to effective committees for many companies:

Lack of shared understanding of approach and organisational context;
Information flows; and
Complexity of solutions and processes.

Shared understanding of approach and organisational context

Most boards will be alert to the need for committees to have at least one member with ‘recent and relevant experience’ of the subject matter, for example appointing someone with CFO or audit experience to the ARC or HRD experience to the RemCo. However, we would argue that such experience is positive but not sufficient for an effective committee. It is equally as important for the committee to have established a shared understanding of the subject matter and the principles upon which the company should base its decisions.

Such principles may be summarised for the RemCo in a remuneration policy statement and for the ARC in a risk appetite statement, but what is critical is that the position is first established by creating a common understanding within the committee, and by extension the board in plenary, without creating barriers to constructive challenge and fresh thinking.

For the RemCo it is important that the shared understanding includes:

How the key remuneration vehicles work;
How remuneration is implemented throughout the company;
The history of remuneration at the company; and
The principles and philosophy that underpin decision-making.

Many RemCos fail on the first hurdle of how key remuneration vehicles work. Salary, pensions, benefits and short- and long-term incentives tend to have local variations but also terminology that mean different things to different people. For example, in Europe it is customary to set annual bonus opportunities with reference to 100% being a maximum, whereas in the US it is more common to refer to 100% as pay for an expected, or target, level of performance.

It is therefore important to understand how remuneration is implemented – both in terms of how it differs for different parts of the organisation and what the intentions are, so that committee members with diverse experience have the same reference points. For example, in some industries where cash is scarce the use of share-based pay to form part of basic employment income may be taken for granted, but elsewhere it is expected to be used with great caution. However, it is not only the circumstances but also the history that determines the company’s position. Such history may include negative experience, like losses in connection with personal investment requirements, which may not be understood by new committee members. It is therefore essential that all committee members understand reward in the same way and can articulate this understanding when determining the principles and framework for decisions to be based on.

The role of many Audit Committees has migrated from its traditional financial focus to include risk management – hence the ARC label. As a committee, the ARC tends to bring together a wealth of financial, risk and business understanding from multiple organisations as well as sectors and, although primarily not a decision-making forum, it can add significantly to the understanding of the risk framework as well as the risk profile and provide challenges to management and insight to the wider board.

In this context, the ARC becomes a key mechanism for reviewing the risk and controls framework, testing the effectiveness of the risk process in individual businesses and doing deep-dives on specific principal or material risks. It can also be a vehicle for reviewing and testing the proposed risk appetite in advance of a plenary discussion at board level. However, the risk management role that the ARC fulfils varies between different companies reflecting scale, complexity, committee and board composition as well as different

levels of exposure to new challenges like cyber security, technology change and ESG, making it equally important to ensure that these circumstances are translated to a common understanding. This can be achieved by the ARC encouraging the organisation to take a more formal and structured approach to risk appetite. A more formal structure helps to ensure that the risk appetite framework and statement become both a governance and oversight tool for the board (and its sub-committees) as well as an executive decision-making tool, providing better line of sight to executive execution. The risk appetite statement will then support better risk-return trade-offs and enable the business to consider the level of risk that it is willing to take in pursuit of its strategic, commercial, operational and financial objectives. See an illustration below of what the key dimensions are that could deliver a shared understanding.

To achieve a shared understanding, committees need to spend time considering the fundamental aspects of subjects like risk and reward and their interactions, which is helpful for the development of both remuneration policy and risk appetite statements. If the work can then extend into the whole board, or at least a joint session between the ARC and the RemCo, the shared understanding will be further enhanced so that it doesn’t fail in areas of overlap. The ARC needs to be cognizant of the risk implications (both financial and reputational) of changes to the reward strategy and to factor this into its deliberations and deep dives on specific risks or indeed, the risk processes in key businesses and functions. Equally, the RemCo should take into account any changes to the risk appetite when considering changes to the reward strategy.

Shared understanding helps to bridge different points of view and enables better dialogue within the board but it is also essential to be aware of the dangers of ‘group think’ so that principles, articulated into reward philosophy and policy and risk appetite, are not written in stone, creating self-imposed barriers to needed change. In addition, the committee Chairs have a key role in surfacing both conscious and unconscious biases to ensure that the discussions and proposed approaches for the business in question are fit for purpose and reflect a ‘best possible outcome’, for the organisation.

Information flows

To help ensure that common understanding does not lead to the creation of barriers to change and new ideas there also needs to be an appropriate flow of information to the committee, to then filter and escalate to the board as appropriate. Unsurprisingly, the two main information flow concerns we observe are, first, if the committee fails to articulate what information it needs and, secondly, where the organisation fails to provide the committee with that information due to inappropriate filtering, lack of information or poor communication of available data.

The information flows to the ARC are relatively straight-forward as they pertain to defined financial information, controls information and risk reporting. Notwithstanding this, there
can be considerable variation in the timeliness and quality of financial and risk information flowing to the ARC, not least within emerging areas like sustainability, which needs to be addressed to allow the committee to discharge its mandate in an effective manner.

Equally, the ARC can support in improving the information flow to the RemCo in relation to alternative performance measures and the discussions and decisions that impact the profile and exposure for Principal Risks as well as utilisation of risk appetite for reward.

For the RemCo the information flow most discussed tends to be the acquisition and analysis of market data for levels of reward. But since most executive compensation depends on links to performance it is information for incentive design that will most likely trigger challenges from different stakeholders. Many committees find it difficult to gain sufficient understanding of the probabilities attached to the consequences of actions and behaviours in order to determine the desired performance/ reward relationships. The starting point of equating the level of compensation that one wants to pay for expected performance outcomes, such as the budget, may be relatively straight- forward. However, where committees often struggle is to then calibrate threshold levels of performance, below which it would be unacceptable to reward someone, and stretching levels of performance, at which either incentives are capped or not expected to be achieved.

To be able to set or assess appropriate performance/reward relationships or risk processes requires that data be provided by management. We suggest that helpful first steps to determining what the committee’s information requirements are would be to:

Determine a standard agenda for each of the planned meetings of the annual committee cycle;
Define the minimum amount of information required for each agenda item, eg primary information for key risks plus secondary data in the form of key accounting items and ratios;
Clarify the purpose of the required information to help management understand its value and how it will be used; and
Define the process flow and responsibility for validating the data, including whether the committee can take outside help. For example, finance and risk functions prepare management information and performance data for their respective areas and validation is undertaken by assurance functions internally or externally.

Complexity of solutions and processes

Having a common understanding and access to the right information may still not be enough to address the complexity inherent in the subject matters of the committees. Many committees struggle to determine the level of complexity appropriate for the situation. One of the challenges typically facing the ARC is that both the business and the environment in which it is operating are becoming increasingly complex. This will have an impact on the risks, exposures, risk appetite and indeed the compliance requirements that the ARC needs to relate to and define appropriate processes for.

In tackling the complexity of a subject, it is sometimes necessary for the process to be more rigorous. ARCs would benefit from encouraging the business, and indeed the board, to embrace new approaches to risk assessment, scenario modelling and risk appetite processes to help ensure that the Principal Risks and the way they are being managed at both Group and Business Unit level reflects the nature, scale and industries in which the business is operating. Therefore, at a minimum, the following improvements should be considered:

Increase frequency and rigour of Principal Risk discussions and reviews. A yearly review and to go through last year’s Principal Risks is not sufficient;
Move risk assessment from looking at risks in isolation to capturing interdependencies or aggregations through more effective scenario modelling;
Move away from using simplifying assumptions such as symmetrical risk distributions to better capture the uncertainty in the business and risk environments; and
Embrace the emerging regulatory requirements to address financial and business model viability in multiple time horizons with clearer links between the underlying risk scenarios and the viability considerations and disclosures.

For the RemCo the complexity question usually comes up in relation to the design of incentives. Committees find it difficult to combine the complexity of the business with the complexity of the pay and performance relationship. Sometimes this is exacerbated by not differentiating between the complexity perceived by an outside stakeholder and that of an informed participant, often adding further confusion through cognitive bias. To address this the committee needs to discuss and determine what complexities:

It is not allowed to live without (eg regulatory requirements);
What it can’t live without (eg performance measures critical for the business or its owners);
What it wants to retain (eg linked to a specific behaviour or action); an
What it should seek to remove (eg obfuscating features).

In addition, complex reward matters are sometimes ignored or pushed down the agenda. For example, incentives are typically much less complex than pensions, mobility, insurance or termination arrangements, not to mention the total reward picture that encompasses all these remuneration vehicles, but the focus tends to follow items that are understandable to most. It is therefore essential that a committee challenges itself and management, to ensure that there are no risks or unnecessary costs overlooked by oversimplification of required rigour or ignoring what is both complicated and superfluous.

Conclusion

Effective board committees have become key to successful and well-functioning boards and corporate governance. That effectiveness relies first and foremost on the combination of leadership, diverse expertise and experience and purpose. However, we have made the case that the contribution of committees can be improved by putting increased emphasis on shared understanding and common reference points, providing the right information to support decision-making, challenge and review and having a considered approach for dealing with the inherent complexity of the considerations of each board committee.

2023 Nonprofit Standards Benchmarking Survey

Tue, 07 Nov 2023 11:02:27 GMT

BDO’s seventh annual Nonprofit Standards benchmarking survey is a study of 250 nonprofit executives. It highlights the top issues facing nonprofits – and how these organizations plan to adapt to serve the changing needs of their constituents.

2023 Annual ESG Preparedness Report

Thu, 02 Nov 2023 11:08:26 GMT

The Sustainability Board, in collaboration with Chapter Zero, have released their 2023 Annual ESG Preparedness Report which offers a view of the current state of global ESG oversight, with an additional focus on US boards.

FRC Annual Review of Corporate Governance Reporting

Wed, 01 Nov 2023 11:14:21 GMT

The FRC has published its latest Annual Review of Corporate Governance Reporting which finds ongoing improvements in the quality of reporting against the UK Corporate Governance Code, but also identifies areas where many companies are still falling short.

2023 UK Spencer Stuart Board Index

Tue, 31 Oct 2023 09:38:29 GMT

Now in its 28th edition, the 2023 UK Spencer Stuart Board Index is a comprehensive review of board composition and governance practice in the largest 150 companies in the FTSE rankings, providing a valuable perspective on the health of boardrooms during 2022–2023.

Corporate governance: responding to legislation withdrawal

Sun, 29 Oct 2023 11:24:32 GMT

The Government has withdrawn the proposed secondary corporate governance reform legislation it outlined in July. Grant Thornton explains the potential impact of this change and how you can move your internal control and fraud projects forward.

PwC’s 2023 Annual Corporate Directors Survey

Fri, 27 Oct 2023 09:05:40 GMT

In PwC’s 2023 Annual Corporate Directors Survey over 600 corporate directors shared their views on the most pressing issues facing boards, including how they are leading their organizations through uncharted territory.

KPMG Net Zero Readiness Report

Tue, 24 Oct 2023 10:33:20 GMT

KPMG examine the steps taken by 24 countries as well as key economic sectors to reduce the greenhouse gas emissions that cause climate change.

Directors Quarterly: October 2023

Mon, 23 Oct 2023 09:20:47 GMT

In KPMG’s October Directors Quarterly they look at geopolitics and the board, advancing the conversation on climate, financial reporting updates and staying in sync with internal audit.

Unlocking boardroom leadership on software

Thu, 19 Oct 2023 12:44:30 GMT

Colin Hammond is CEO and founder of ScopeMaster Ltd and specialist in large software project assurance. https://www.scopemaster.com

Journal Issue October 2023

Colin Hammond provides the questions boards should be asking to raise the breadth and depth of oversight of software initiatives in their organisations.

The survival of most organisations nowadays is increasingly dependent on software. Whether it is for a board of a bank, a shipping company, in a high-tech industry or any other sector, this article will provide the ability to engage in valuable software governance conversations without getting bogged down in technicalities. This article will introduce the most important metric, functional size and show through examples of board- level questions and answers how boards should ask questions that can steer an organisation towards effective software management.

Quantification of software governance

Functional size is a way of determining software size that applies to all types of software, whether bought as a package or custom built. Functional size is a technology-agnostic measure of functionality. The unit of measure is the COSMIC Function Point (CFP) and is an ISO standard. A single CFP is defined as one of four data movements: an input, an output, a read, or a write of data. For example, the functional size of an ecommerce website is typically in the order of 1500 CFP, whilst a simple to do app on a smartphone might be just 20 CFP. Using CFP, you can measure a small change to an existing application right up to the entire size of a software portfolio.

The number of CFPs in a piece of software aligns well to the effort (and therefore cost) of building it. The typical costs for building custom software is £500–£1200 per CFP, whilst the typical cost to implement a package solution is generally £20–£200 per CFP.

Questions about a software portfolio

How much software are we managing?

Ask for a list of all the systems and their size in CFP.

How much innovation are we delivering?

What is the CFP of innovative software developments and what is their value contribution ( £) to the business?

Are we spending appropriately on software maintenance?

What is the spend per CFP per annum on each maintained system (excluding new features).

How much of our software is ready for retiring?

How many CFPs are more than 10–15 years old? And in which systems are these CFPs.

Questions about efficiency

How productive are our software teams?

CFP delivered per team per month.

CFP maintained per team per month.

Are we managing our software development & maintenance vendors appropriately?
Spend per CFP of new functionality.
Spend per CFP of maintained functionality.

Questions about risk and value

Are we faster than our competitors at delivering innovative software?
CFP per month delivered.

Are we paying too much to suppliers for software?

Cost per CFP for acquired or built software.

Are we optimising our software projects for success?

Knowing that smaller projects are far more likely to succeed and very large projects have high failure probability, how many projects are over 1000 CFP and what is being done to break these down into smaller independent projects?

Are we allocating enough time to succeed with our projects?

Given developer productivity in CFP per month the likely duration of a project can be anticipated.

Are our staff productive?

Average developer productivity is around 10 CFP per month; yet can vary from very low (2 CFP / mo) to very high achievers (150 CFP / mo). Similar benchmarks are available for testers, project managers, system architects, product owners, business analysts etc.

What is the size (and cost) of replacing our most strategically critical systems that are not enabling our strategic plans?

Strategic CFP vs non-strategic CFP delivered p.a.

How much non-strategic development is happening on non- differentiating functionality?
CFP per annum, targeted for delivery.

How many of our software contracts are fixed price per CFP vs time and materials?
Fixed price per CFP is a proven means of controlling software spend on larger engagements.

Are we spending enough on cyber security?

Security related functionality should be around 15% of new systems, has the organisation invested in 15% of CFP on each publicly faced system?

What is our total cost of ownership of each software system?

Implementation + post implementation + annual maintenance + cost of quality deficiency can all be standardised in £/CFP.

Questions about quality

Do we know our software quality?

One of the best metrics for this is the defect removal efficiency which is the number of major defects per CFP that are being exposed to users in the first three months implementation. The US average is only 90%, which means that 10% of all defects are not found before delivery.

Do we know the cost of poor-quality software?

The total (including consequential) cost to the organisation of those defects, per CFP.

These are just some of the valuable questions that can be discussed at board level and they all rely on board members understanding just the one concept which is functional size. The answers to each of these questions can also be compared against industry benchmarks.

Unlike with other gameable metrics commonly used in the software community (story points, lines of code and others) the adoption of CFP-based metrics is unlikely to lead to negative behaviours. Boards can expect some resistance from the IT function within the organisation, as transparency is not always welcome.

Background to CFP

The COSMIC Function Point (CFP) is a standard for sizing software. It is independently governed by a non-profit organisation. The CFP was conceived in 1998 by an international team of software experts and was built on various earlier attempts to standardise software measurement from the early 1970s. Some governments and organisations mandate software functional size measurement for their software acquisition and maintenance.

What about other software metrics?

Other popular software indicators and metrics tend to focus
on how software is delivered not its magnitude. DOR A metrics for instance, focus on developer efficiency but fail to provide means for answering questions on portfolio or non-developer work. Story points are just an alternative to ideal hours; they are subjective, highly gameable, and gamed. DORA metrics and others, such as SPACE metrics, are helpful at the technical level but are of little interest in the boardroom. DORA might be the equivalent of bricks laid per hour by a bricklayer, whereas CFP is more like square foot of housing.

What to do next?

Board members do not need to know how to measure CFP. They just need to know that CFP is a measure of software functional size. And it is worth also knowing the following:

CFP is a measure of software functional size.
CFP can be used to size new applications.
CFP can be used to size changes to applications.
CFP can be used to size maintenance scope.
CFP only measures functionality, it does not measure performance, scalability, or other ‘non-functional dimensions’ of a software endeavour.
One CFP can be delivered by one line of code or 100 lines, but it’s still one CFP.
Software projects can use CFP to help control scope, schedule adherence, and quality.
CFP can be estimated before the software is built (by examining requirements) and used for planning and efficient decision-making.
CFP can be measured once detailed software specifications are known. Until then it is estimated.
Off-the-shelf packages can provide CFP through installation and configuration (this is a form of re-use).
Benchmarks for productivity, quality, and more in CFP can be purchased from ISBSG.org or organisations can establish their own.
The process of estimating and measuring a project in CFP has a virtuous by-product of improving requirements quality.

Next steps

Boards should start by asking executives to report on the size of the organisation’s software portfolio in CFP so that they can benchmark the strategic spend across the portfolio. Then follow up with other questions, such as those listed above. Introducing CFP sizing in an organisation will typically pay for itself within the first few months, and give compound benefits thereafter. Most importantly, using CFP-based questions

will allow the boardroom to become proactive with software governance.

What does it cost to estimate an entire portfolio?

A detailed manual measurement rarely exceeds £8 per CFP. Automated sizing is now available too, costing £1–2 per CFP. When the cost to deliver a CFP is £800, spending just £1–2 to know its size is a reasonable investment.

Why have I not heard of CFP before?

The organisation behind CFP, COSMIC is a non-profit with no marketing budget. Furthermore, the adoption of CFP brings transparency to software spend and software work in an industry where most participants, consultants, and suppliers benefit personally or as an organisation from opacity.

Start asking for CFP today.

The Three-Year Itch

Tue, 10 Oct 2023 10:55:51 GMT

One-third of CEOs are now leaving their posts within three years, a new Korn Ferry study finds. Would better succession planning help retain them?

Board Monitor Brazil 2023

Sat, 07 Oct 2023 10:59:33 GMT

Heidrick & Struggles Board Monitor Brazil 2023 shows Brazilian boards in 2022 saw an uptick in directors active in their executive roles and a decrease in first-time public board directors.

Rethinking Board Motivation

Fri, 06 Oct 2023 11:02:02 GMT

This global study from Egon Zehnder sheds lights on the motivation, dedication, and compensation of board directors across a range of public companies through a series of interviews and a survey that uncovers important trends to watch.

2023 BDO Private Capital Survey

Sun, 01 Oct 2023 11:08:56 GMT

With insights from more than 600 PE funds and portfolio companies, the 2023 BDO Private Capital Survey explores the unique challenges facing the industry in an economy defined by high interest rates and inflation.

Director remuneration in FTSE 100 companies – 2023 report

Fri, 29 Sep 2023 11:15:01 GMT

WTW’s recap of the 2023 Annual General Meeting season plus pay trends for executive and non-executive directors for companies in the FTSE 100.

ESG and the link to purpose

Wed, 20 Sep 2023 13:27:41 GMT

Tom Proverbs-Garbett is an Associate Director in RSM’s ESG consulting team. He is a fellow of the Chartered Governance Institute and former corporate lawyer, whose consulting practice focusses on governance matters, board effectiveness and behaviours, and issues surrounding directors’ duties. Tom writes regularly on governance matters and works closely with clients to address all aspects of their governance needs, particularly in the context of wider ESG matters. rsmuk.com/our-people/tom-proverbs-garbett

Journal Issue September 2023

Tom Proverbs-Garbett looks at the changing face of a corporate’s social responsibility.

Back in the 1960s and 70s, eminent economist Milton Friedman told us that a corporate’s social responsibility is solely: ‘to increase its profits’. 1 Or perhaps he didn’t. Perhaps, on the cusp of 1980s excesses, Friedman was making an altogether more subtle point about the tendency of directors and managers to try to rule all they see, and instead they should concentrate on profits for shareholders ‘in open and free competition without deception or fraud.’ 2 Whether this implies an ethical element to the pursuit of profit is hotly debated. 3 Yet the influence of the sentiment is not: if the main responsibility of business is to maximise revenue and increase returns to shareholders, then reflection on any further purpose of the business – and particularly any social purpose – tends, by definition, not to take place. 4 The business does what is right for the bottom line, regardless of social good. The two may align, but by accident rather than design.

In the context of the shareholder primacy model, informed as it has become by agency theory, 5 the aim of corporate governance becomes the effort to ameliorate tension between owners, the shareholders, and their agents - directors, who manage the business for their benefit. That leads to benefits to the internal interactions of actors in a business, but not necessarily to the social actors affected by the operation of that business. That companies and those who lead them should consider the benefit to wider stakeholders is argued to be not just an ethical position, but one that is owed by virtue of the privilege of limited liability. 6

In the UK, a subtle change of perspective is baked into the Companies Act 2006. The Act directs that directors of companies must, in making decisions, act to promote the success of the company for the benefit of its shareholders but in doing so must have regard to – in other words consider – certain stakeholders and associated factors. 7 Shareholders are still at the heart of corporate decision-making (as beneficiaries), but there is a recognition that the impact of a company on society is something that should be part of decision-making
– and that such an approach will benefit shareholders (an approach known as enlightened shareholder value). 8

A cultural shift

The world of business is undergoing something of a cultural shift, as a new generation joins the workplace with a much greater sense – at least in terms of choosing and challenging employers – of social justice and meaning. 9 If the culture of a business becomes more attuned to its impact on society, that, in turn, reframes the approach to doing business, moving from compliance to ethically weighted questions: from ‘could we?’ to ‘should we?’ 10 By building a culture that reflects its shared ethical values, a business is likely to consider wider society as part of its business-as-usual approach; the two are interlinked. Yet if the simplicity of making money for shareholders is no longer a sole driver, for any of the reasons already given, then the company needs an aim – a purpose.

Purposeful business, purpose and the role of ESG

The British Academy, in its Principles for Purposeful Business , suggests the aim should be to ‘produce profitable solutions to the problems of people and planet, and not to profit from producing problems for people or planet.’ 11 There is a distinction here between an aspirational purpose – why a company does what it does – and the idea of purposeful business – solving problems. 12 Nevertheless, there is a connection: working out what the solution that any given company can offer will be the purpose of that company .

Whether one subscribes to the idea of purpose-driven business being a game changer or not, it is a fact that the leadership teams of many corporates are taking this approach seriously. 13 As it calls for an element of organisational self- reflection, it is suggested that most leaders would want to say that their organisation does or intends to provide some sort of wider benefit to society. Certainly, that is the case with employees: a survey reported in the Harvard Business Review in 2018 suggested that nine out of ten employees would trade a portion of earnings for greater meaning in their work. 14

So, an effective purpose of a company is likely to be the reason why it exists and how it contributes to the common good. Not maximising shareholder returns, as Friedman has been interpreted as saying, 15 but rather finding an answer to the existential question of how to contribute to common, wider goals. 16 This is where ‘ESG’, the umbrella term for environmental, social and governance issues, can do work.

As practitioners, we used to talk a lot about Corporate Social Responsibility – known as ‘CSR’ – the idea that business should contribute to society and the environment, be aware of its impact, that it should ‘give back’. ESG moves beyond CSR, which has been criticised for being strategic. 17 Where CSR is about activity, ESG is about purpose: rather than a business seeking to ‘do good’, it should seek to ‘be good’, embedding in its governance structures fundamental strategic approaches intended to benefit the social and environment context of the organisation. It is the idea of responsible business.

The ESG agenda is not without its critics, in particular of its wide scope (leading to a nebulousness that obscures intended outcomes) and the inclusion of governance (a tool for control and, at most, a mechanism for the making of normative judgements). 18 For present purposes, it is sufficient to say that this terminology and these concerns are a huge talking point for the corporate world. Recent research on business leadership and the approach to ESG found that 88% of boards are engaging on ESG issues because the materiality to the business is recognised; 52% of boards have come under pressure on ESG issues from customers; 46% have faced pressure from employees. 19

Crucially, this is not about sacrifice. The point is not that shareholders lose out or that businesses disregard profit
for doing good. There are significant opportunities from embracing the ESG movement; even its wide scope can
be an advantage, lending itself to new, interdisciplinary and innovative ways of working. 20 As we saw above, there is a growing expectation that a business will have an ESG strategy, from employees, customers, debt funders and investors. 21 That narrative is an opportunity to explain what makes a company different – evidencing its purpose in action.

However, to access this opportunity is likely to require commitment. Indeed, some commentators have argued that a separate ESG strategy is redundant and that, to be successful, ESG considerations must be embedded in overall strategy given they (should) guide and drive it. 22 This is practically indistinguishable from a stakeholder capitalist model, the idea that the wider purpose of a company should be ‘sustainable enterprise value creation rather than solely increased profitability’. 23

Has anything changed?

There is an argument that the Companies Act 2006 already imposes an obligation on a director of a company to take into account wider stakeholder factors.

As we saw earlier in this article, under section 172 of that Act, directors must act in the way they consider, honestly, to be most likely to promote the success of the company for the benefit of its members. 24 In doing so, they must have regard to a number of stakeholders and stakeholder factors: the likely consequences of any decision in the long term, the interests of employees, relationships with suppliers and customers, the impact on the community and the environment, and reputational issues. 25 This is intended to be nothing more than a list of ‘sensible rules of business’, according to the explanatory notes of the Act. 26 Considering the impact of a company’s actions on society should be hardwired into decision-making.

There are, however, calls to make this more explicit. The ‘Better Business Act’ campaign is a proposal for changes to section 172 so that it imposes a duty on directors to advance the purpose of the company , rather than to promote the success of the company for its shareholders albeit in the context of considering wider stakeholder interests. 27 Section 172(2) permits a company to create purposes other than the benefit of its members and, if it does, ‘success’ is achieving those altruistic purposes. Yet, this is an exception – the point is to make stakeholder concerns the default and paramount concern, linking inextricably the purpose of a company and its impact in and on society.

In an ESG context, a commonly adopted framework through which to identify actions is the United Nations’ Sustainable Development Goals (‘SDGs’). 28 This is a list of proposed outcomes which focus on ending poverty while also addressing sustainability issues. The attraction of the SDGs is that a company can choose to work with those goals that are a natural fit for the business, its purpose (if it has one) or the concerns of its stakeholders. 29 The focus might be on Goal 4, ensuring inclusive and equitable quality education and promoting lifelong learning opportunities for all, or Goal 5, achieving gender equality and empower all women and girls, or Goal 13, taking urgent action to combat climate change and its impacts. 30

This will be separate from a business’ purpose, but indicates the sort of issues to which, through its purpose, it can start to contribute solutions (in however small or large a part). Again, this is a move away from thinking about ESG issues as something that happens to the company, an external factor to be dealt with as best the company can, to informing its actions and decision-making at every level. 31 With focus on acting in the interests of stakeholders, this is in many respects a restatement of stakeholder capitalism.

UK Corporate Governance Code consultation

In early June 2023, the Financial Reporting Council released proposed changes to the UK Corporate Governance Code. 32 This is important as, while the Code applies to premium listed companies on the London Stock Exchange, its position as the pre-eminent statement of governance best practice is unrivalled.

Two pertinent changes were proposed as part of the consultation: first a move towards outcome-based reporting and activity. Leaders should be able to describe why a company’s chosen governance practices assist in its strategic endeavours, led by its purpose, giving practical examples. The second, linked, change is an explicit acknowledgement that annual reporting should demonstrate how environmental and social matters are taken into account in a company’s governance, and how this contributes to the delivery of its strategy.

Cumulatively, the question boards will be expected to answer is: ‘What is the impact of the E, S and G on your business model and your overall strategy in the context of your purpose?’ Linking, by development or design, strategy, purpose and ESG means that regardless of the wider, academic debate about shareholder or stakeholder primacy, high-performing boards must consider why their organisation does what it does, where environmental and social issues sit in this mix of aims, and how any chosen or applied governance framework facilitates delivery.

Conclusion

There is demonstrably space for seeking to improve matters for all stakeholders and wider society while still driving successful business. The rapid rise of ESG, now a central reputational and financial question for all organisations, 33 means that identifying ‘purpose’ is no longer progressive but a prerequisite to running an effective business. Only by knowing why you do what you do and what impact you want to have in the world will you be able to progress those aims and decide how to measure success; the demands of the workforce for a sense

of meaning and the urgency of the climate crisis a clarion call. 34 After all, both the ESG agenda and the concept of business purpose are about outcomes not intentions, actions not words.

1. Friedman, M. (1970) ‘The Social Responsibility of a Business is to Increase its Profits’, New York Times Magazine , May 13.
2. Friedman, M. (1962) Capitalism and Freedom , Chicago: University of Chicago Press, 133.
3. Clarke, T. (2020) ‘The Contest on Corporate Purpose: Why Lynn Stout was Right and Milton Friedman was Wrong’, Accounting, Economics and Law , vol. 10(3), 1-46; Elrick, J. and Thies, C. (2018) ‘The Social Responsibility of Business: Milton Friedman Reconsidered’, Journal of Markets and Morality , vol 21(2), 297-307.

4. Rigby, D., Elk, S. and Berez, S. (2022) ‘Purposeful Business the Agile Way: Turn Squishy Debates into Concrete Action’, Harvard Business Review , 56-58.
5. Weinstein, O. (2019) 'Understanding the Roots of Shareholder Primacy: The Meaning of Agency Theory and the Conditions of its Contagion', in Clarke, T., O’Brien, J. and O’Kelley, C. (eds.), The Oxford Handbook of the Corporation , Oxford: Oxford University Press, 139-167.

6. Mayer, C. (2022) ‘The Research Background to the Final Report of the Future of the Corporation Programme on ‘Policy & Practice for Purposeful Business’, Journal of the British Academy ,
vol. 10(5), 1-15.
7. Section 172 Companies Act 2006.

8. Explanatory notes to the Companies Act 2006, para. 325.
9. Langan, R. and Menz, M (2022) ‘Does Your Company Need a Chief ESG Officer?’ Harvard Business Review , available online: https://hbr.org/2022/02/does-your-company-need-a-chief-esg- officer
10. Australian Institute of Company Directors (2020) ‘Governing Organisational Culture: Tool’, AICD. com, available online: https://www.aicd.com.au/organisational-culture/business-ethics/change/ governing-organisational-culture.html.
11. Mayer, n 6.
12. Ibid, 2.
13. Clarke, n 3.
14. Achor, S., Reece, A., Kellerman, G. and Robichaux, A. (2018) ‘9 Out of 10 People are Willing to Earn Less Money to do More-Meaningful Work’, Harvard Business Review , available online: https:// hbr.org/2018/11/9-out-of-10-people-are-willing-to-earn-less-money-to-do-more-meaningful-work. 15. See for example Clarke, n 3.
16. Friedland, J. and Jain, T. (2022) ‘Reframing the Purpose of Business Education: Crowding-in a Culture of Moral Self-Awareness’, Journal of Management Inquiry , vol. 31(1), 15-29, 18.
17. Barnett, M. (2019) ‘The Business Case for Corporate Social Responsibility: A Critique and an Indirect Path Forward’, Business & Society , vol. 58(1), 167-190.
18. Larcker, D., Tayan, B. and Watts, E. (2021) ‘Seven Myths of ESG’, Rock Center for Corporate Governance at Stanford University Working Paper, available online at: https://ssrn.com/ abstract=3956044.
19. Board Agenda, Mazars and Henley Business School. (2023) ‘Leadership in
ESG Integration: A Study into UK Board Oversight, Implementation and Disclosure’, available online: https://www.mazars.co.uk/content/download/1154446/59067133/version//file/Leadership-in-ESG- integration-Report-of-findings.pdf, 3.
20. Rigby et al., n 4.
21. Board Agenda, n 18.
22. Samans, R. and Nelson, J. (2022) ‘Stakeholder Capitalism’s Promising Resurgence’, Sustainable Enterprise Value Creation , Cham: Palgrave Macmillan, 3-34.
23. Ibid., 20.
24. See n 7.
25. Ibid.
26. See n 8.
27. The campaign is led by not-for-profit body B Lab UK, which also certifies organisations that make particular commitments addressing environmental, social and economic challenges, known as ‘B Corps’; see, https://betterbusinessact.org/.
28. United Nations Department of Economic and Social Affairs, Sustainable Development , available online: https://sdgs.un.org/goals.
29. Jimenez, D., Franco, I.B., Smith, T. (2021) ‘A Review of Corporate Purpose: An Approach to Actioning the Sustainable Development Goals (SDGs)’, Sustainability , vol. 13(7), 3899-3920.
30. Ibid.
31. Ibid., 3899.
32. Financial Reporting Council. (2023) ‘UK Corporate Governance Code: Consultation Document’, frc.org.uk , available online: https://www.frc.org.uk/getattachment/a92c8f2d-d119-4c4b-b45f- 660696af7a6c/Corporate-Governance-Code-consultation-document.pdf.
33. Maaloul, M., Zéghal, D., Amar, W. and Mansour, S. (2023) ‘The Effect of Environmental, Social, and Governance (ESG) Performance and Disclosure on Cost of Debt: The Mediating Effect of Corporate Reputation’,

Corporate Reputation Review , vol. 26, 1-18.
34. Joly, H. (2021) ‘Creating a Meaningful Corporate Purpose’, Harvard Business Review , 28 October, available online: https://hbr.org/2021/10/creating-a-meaningful-corporate-purpose.

The Board Member’s Guide to Overseeing AI

Wed, 20 Sep 2023 11:18:58 GMT

A practical guide for corporate directors to harness Artificial Intelligence for their companies.

Governance: the key to unlocking ESG

Wed, 13 Sep 2023 13:45:55 GMT

Claude Brown is a Partner at Reed Smith. He is part of the firm’s global ESG practice. https://www.reedsmith.com/en

Journal Issue September 2023

Claude Brown argues that governance is the most critical aspect to ESG as a whole and organisations would cease to function without it.

ESG considerations and its impacts on businesses world-wide have been well-documented in recent years, and will likely remain in the spotlight for years to come – a Thomson Reuters report this year revealed that, for the third year in a row, more large global companies were disclosing ESG matters than in previous years; the latest figure standing at 95%.

But do all three aspects of ESG receive equal consideration in the workplace? It cannot be denied that the environmental strand has remained front and centre thus far, understandably so given the importance of addressing climate change and preserving our planet. The social aspect comes next in terms of making a tangible difference to people and communities we live in, leaving governance trailing behind. But this risks undermining the importance of 'governance' as a strand of ESG – it is arguably the most critical aspect to ESG as a whole and organisations would cease to function without it.

What is governance?

Governance is about more than just how an organisation runs itself internally – taking this view vastly limits the scope of what governance hopes to achieve and overlooks a variety of wide-ranging issues that can impact a company. This includes important company-wide policies addressing critical issues ensuring fairness and happiness in the workplace; addressing employment issues to do with racism, sexism, mental health and well-being, alongside more typical considerations like health and safety, rates of progression, whistleblowing, and complaints procedures. These good practices ensure that an organisation can function effectively and reflect management’s willingness to take responsibility for treating employees with respect and fairness.

However, it is no longer enough that organisations address the aforementioned issues alone to ensure the workplace is a happy and healthy one – they must also have governance strategies in place to deal with ESG considerations. Today’s workforce is keen not only to ensure that their needs, professionally and personally, are met but also to try and do work that is meaningful to the communities – and the world – they live in. Hence, it is no surprise that ESG has risen to the top of the corporate agenda as this shift has gripped the workplace.

The question of accountability

The simple answer is that it should be the board that is responsible for implementing and regulating how organisations interact with ESG obligations, lest we risk them falling to the bottom of the agenda when left with a person out of the board’s immediate oversight: more often than not, organisations will assign the general counsel, allocated sustainability officer, or anyone other than the board themselves. While the general sentiment may be that the board has better things to do with their time, this is a massive oversight that means ESG soon becomes just another thing to be reported on at a board meeting, making it clear to stakeholders that ESG considerations are not important enough to be front and centre for the board. Ultimately, ESG should not be on any list at all; rather informing every aspect of discussions that go on at board meetings and even in the wider workplace, making its mark on every decision the board makes.

Thus, the need for a comprehensive and integrated ESG policy is essential in the age we live in; this can only be achieved with the supervision and broad view that comes from the board or an equivalent body in the organisation’s hierarchy. This is also vital in ensuring that balance exists within and between each strand of ESG – if ideas and action all come from the bottom- up, it is easy for one component to receive more attention than the others with no one to really keep this in check.

Top-down vs bottom-up

Proponents of the bottom-up approach to governance, rather than the aforementioned top-down strategy, believe that ESG strategies are most effective when they come from managers and employees lower down in the company hierarchy; utilising their engagement and willingness to do good in an effort to prove themselves to the organisation. However, the risk here lies in that without a top-down approach providing structure to their actions, any actions – however well intended – may possibly have an adverse outwards ripple effect on other aspects of ESG.

For example, a commitment to environmental concerns is commendable, but doing this at the expense of creating unforeseen social consequences is less commendable. This can be easily prevented with the benefit of oversight from a supervisory figure or figures, ideally the board, who can set governance policies in place designed to avoid this happening.

The top-down approach has other benefits too – by establishing that ESG is a priority for those at the highest levels of leadership, it sets a good example for others at the company. This also shows stakeholders that ESG obligations are not just handed down as a matter of less importance, but rather that they should take centre stage along with other important issues for the board’s consideration.

The grand scheme of things

Despite the importance of establishing solid internal foundations to support ESG from within an organisation, this will not always be the case – ESG initiatives, and thereby governance, are still influenced by external factors. One such example comes from stakeholders becoming increasingly involved as a result of the rising importance of ESG on the corporate and public agenda.

You cannot choose your stakeholders – while some will spring to mind instantly, like shareholders, customers, suppliers and service providers, some are trickier to identify; such as single- issue activists, pressure groups, lobbyists and to an extent, the public. It is clear that organisations do not get to define its ESG stakeholders; more often than not they define themselves, especially when it comes to newer, amorphous groups. As the focus on ESG ripples up and down the supply chain, the more stakeholders can change, adding new stakeholders from the organisation’s suppliers and customers alike to its existing groups.

This is why an external-facing ESG policy is needed, though not necessarily one that is different from an organisation’s internal policies, as doing that will only result in accusations of hypocrisy and double-standards. Any policies implemented, external and internal, must be held to a consistent standard and fully integrated into the running of the organisation.

Another vital role governance plays in ESG is in ensuring that ESG strategies extend into the long term rather than just the short to medium term – this is critical in avoiding any instances of one strand’s aims interfering with another strand’s, creating unforeseen and unwanted consequences. This requires strategies to be implemented and put in place by bodies with the requisite amount of authority to do so.

Measuring and assessing the effectiveness of governance strategies is also important – which is why a strategy for governance must be relatively constant to allow for all stakeholders to do so, though there is a balance that must be struck between this and one that is flexible enough to adapt to the ever-changing ESG agenda.

Hallmarks of good governance

Ultimately, implementation and engagement of ESG strategies from the top-down is the most significant indicator of good governance, and is something to look out for by investors looking to gauge an organisation’s approach to ESG. They should also ensure that the strategy balances equally the environmental, societal and governance strands of ESG and ensure that no unintended consequences occur from one initiative interfering with another. Internal and external policies towards governance should be addressed, and the two should be consistent. Strategies must also be designed to be responsive to changes – both in the rapidly evolving community of stakeholders, as well as in constantly evolving ESG agenda.

Effective Board Governance of Cyber Security

Thu, 07 Sep 2023 11:49:00 GMT

Corporate boards must sharpen their awareness of cyber issues and take a more proactive approach towards preventing data breaches at their companies, according to a new report from security specialists Savanti.

2023 Q3 Audit committee newsletter: prepare for your next meeting

Tue, 05 Sep 2023 12:03:53 GMT

Each quarter PwC provide highlights of trending financial reporting topics as well as helpful links guiding you to more information.

Geopolitics in the boardroom: A discussion from the Nordics

Tue, 05 Sep 2023 12:00:57 GMT

Drawing insights from a recent event in Copenhagen, Spencer Stuart consider how boards can react to the geopolitical turbulence which continues to remake our world around us.

The new fintech board

Mon, 04 Sep 2023 12:06:52 GMT

As fintechs have grown and become increasingly important players in the financial ecosystem, the demand for a diverse, well-rounded set of board members has increased.

Risk in Focus 2024: Hot topics for internal auditors

Sun, 03 Sep 2023 12:11:31 GMT

With the backdrop of economic uncertainty playing a key theme in this year’s Risk in Focus, the Chartered Institute of Internal Auditors report aims to support internal audit and risk management functions in navigating through a poly-crisis of high-impact interlocking risk that organisations are facing today.

2023 Private Company Executive Compensation Survey Insights Report

Fri, 01 Sep 2023 12:14:14 GMT

BDO conducted an inaugural survey to assess compensation of CEOs and CFOs in private companies, analyzing executive pay, including salaries, bonuses, long-term incentives/equity, and more from over 750 participating private companies. This insights report highlights some of the key findings from analysis of the survey data.

Are boards losing control?

Tue, 29 Aug 2023 12:20:14 GMT

The Institute of Directors’ Centre for Corporate Governance has published this report looking at the biggest challenges facing companies over the next five to ten years, evaluating the level of control boards have, and the actions required by boards and policymakers to address these issues.

Midyear observations on the 2023 board agenda

Thu, 24 Aug 2023 12:22:47 GMT

As boards and their committees continue to calibrate their agendas in response to ongoing disruption and uncertainty, KPMG offer midyear observations to On the 2023 board agenda.

Boards in Saudi Arabia: Upping their game for growth

Sat, 19 Aug 2023 12:25:08 GMT

As Saudi Arabia gears up for a period of accelerated growth and opportunity fueled by Vision 2030, Heidrick & Struggles interviewed 10 directors on leading boards to highlight how boards can seize this opportunity to embrace the next phase of their professionalization.

2023 S&P 500 New Director & Diversity Snapshot

Thu, 17 Aug 2023 12:26:44 GMT

Spencer Stuart’s 2023 S&P 500 New Director & Diversity Snapshot show boards are facing an increasingly complex business & regulatory environment & growing activism; in response, they are focusing on composition & strategic director appointments.

DAX 40 Supervisory Boards Study 2023

Sat, 12 Aug 2023 12:29:35 GMT

Findings from RRA’s annual comprehensive analysis of Germany’s DAX and Germany’s Dax supervisory boards.

Regional Overview, North America – Directors and Officers Survey 2023

Thu, 10 Aug 2023 12:35:05 GMT

North American responders were less concerned with some of their top risks than others were concerned with their lowest rated risks, in WTW’s North America Directors & Officers Survey 2023.

The state of AI in 2023: Generative AI’s breakout year

Wed, 09 Aug 2023 12:40:45 GMT

The latest annual McKinsey Global Survey on the current state of AI confirms the explosive growth of generative AI (gen AI) tools.

The Future of AI Global Governance

Sat, 29 Jul 2023 12:43:28 GMT

The report offers a first-of-its kind perspective on global AI regulation and governance that combines the legal expertise of Dentons, the AI acumen of VERSES, and guidance on socio-technical standards from the Spatial Web Foundation. The report outlines why the current regulatory thinking around AI may ultimately not be able to address the future of…

Nominating/Governance Chair Survey 2023

Thu, 27 Jul 2023 12:46:53 GMT

Spencer Stuart’s latest annual survey of nominating/governance committee chairs, conducted in the first quarter of 2023, shows how committees are shining a renewed light on the essential skills needed in the boardroom.

Directors Quarterly: July 2023

Thu, 20 Jul 2023 12:49:10 GMT

In this edition, KPMG share insights from their recent Audit Committee Leadership Forum and Board Leadership Conference. They also look at recent proxy season trends and how they may shape engagement during the proxy off-season, as well as insights from their 2023 survey of nearly 600 US private company directors.

CEO succession planning

Wed, 19 Jul 2023 10:39:55 GMT

Whilst the number of areas involving board oversight has increased dramatically over recent years, Chief Executive Officer (CEO) succession remains one of the most important director responsibilities, according to a Report from Deloitte. The CEO is usually the most visible and prominent position in a company. An effective succession planning strategy can result in a CEO with transformative leadership potential who can execute the company’s long-term vision and can add value for shareholders and other stakeholders.

Board role

The board’s role in succession planning is unique and one nof its highest-priority activities. Boards need to think about the rest of the management team and consider whether an incoming CEO, when combined with other key members of the executive team, has the set of qualities that are most valued by the company’s stakeholders.

Qualities and characteristics

There has been a shift in what boards look for in CEO candidates. In the past, boards often looked for a strong leader with a fixed, specific point of view, nurturing a specific candidate for the CEO role. This approach has its merits and evidence links this type of succession with improved company performance.

Now when selecting a new CEO, factors to consider include:

external factors – geopolitical forces and the macroeconomic climate;
company needs – current long-term strategy and industry- specific concerns; and
candidate qualities – appropriate leadership style and internal v external candidates.

Talent plays a huge role, but it is important to consider: fit with the company strategy and vision; what is happening at the company; and company needs given company industry, history, maturity, and other unique characteristics. However, with a shifting geopolitical and economic operating environment, different qualities are now prioritised, such as openness to innovation, humility and agility. As both board members and companies have become more flexible, so too has the candidate selection process. As a result, some boards might consider casting a wider net and designing a selection process around multiple candidates.

Process

In terms of the process, the structure will, and should, vary based on a company’s culture, norms and industry. The following things should be borne in mind:

use of third parties: boards want to be as objective as possible in selecting a new CEO and many engage search firms or other outside consultants. In some cases, adding a third party can create distance between the candidates and the board. Ideally, the search process should be flexible enough to adjust for this if it becomes a concern.
timing: companies start working on succession planning on average about two years before the current CEO’s planned departure. Starting earlier or later than that depends on circumstances. Consideration should be given as to how an extended succession planning process may be perceived by the incumbent CEO and the company’s stakeholders.
existing management roles: some boards deliberately talk with C-suite executives not in contention for the CEO role. Incorporating perspectives from other levels of management can give a more holistic sense of the leadership qualities of internal candidates.
balancing internal versus external candidates: boards often want to consider both types of candidates. Some companies have a culture and preference for internal candidates, but sometimes there are no qualified candidates available.

Communication

Communication with candidates who are not selected is key. Boards want to see a combination of qualities, agility, resilience, team leadership and vision, that can be hard to find in one person. Sometimes an individual may be highly qualified but just not a good fit for the CEO role at the time.

While communication and transparency are important for everyone in the process, they are especially key for internal candidates. Failure to be transparent could be seen by candidates as an indictment of their leadership or work quality. It could also prompt high potential internal candidates to seek opportunities with other companies.

Prospective candidates

Many prospective candidates are starting to work with coaches and mentors who specialise in CEO-level roles. Sometimes serving on another company’s board can provide future candidates with a valuable perspective on the link between governance and succession planning. CEO selection involves many parties with varying influence in the decision- making process. In most cases the outgoing CEO will have an influential voice in the selection of their successor. Even if a candidate seems otherwise qualified, without a strong vote of confidence from the current CEO they are unlikely to be selected. Even more so when retiring CEOs often stay on as executive Chair or in a similar capacity.

For the full Report go to: https://www2.deloitte.com/us/en/pages/center-for-board-effectiveness/articles/the-never-ending-story-ceo-succession-planning.html

Note to the Board: Should Someone Step Down?

Thu, 13 Jul 2023 12:52:06 GMT

A new survey shows that a remarkable nine out of ten executives, and nearly 50% of directors, think at least one board member should be replaced.

The Role of the Board in the Sustainability Era

Wed, 12 Jul 2023 13:01:21 GMT

Heidrick & Struggles’ global sustainability report, conducted in partnership by BCG and the INSEAD Corporate Governance Centre, finds that boards are adapting—making changes to how they approach their own composition, their governance and process considerations, and the metrics they track.

CGI Code of Practice for board reviewers

Thu, 06 Jul 2023 14:02:05 GMT

The Chartered Governance Institute UK & Ireland (CGIUKI) has launched a Code of Practice, which will be underpinned by an accreditation framework, to support effective board performance reviews.

Fostering Corporate Governance & Enhancing Board Effectiveness Survey

Wed, 05 Jul 2023 08:21:22 GMT

Board members recognize the value of a strong ESG strategy and acknowledge opportunities to improve oversight of climate and governance risks. This is according to a recent survey conducted by WTW and the Nasdaq Center for Board Excellence.

BDO Global Risk Landscape 2023

Sat, 01 Jul 2023 08:25:07 GMT

The BDO Global Risk Landscape Report examines the attitudes of risk leaders to a range of emerging and evolving risks such as fraud, Artificial Intelligence (AI) and digital transformation, Cyber attacks and climate change.

FRC Proxy Advisors & ESG Rating Agencies impact report

Thu, 29 Jun 2023 08:28:26 GMT

In August 2022 the Financial Reporting Council (FRC) commissioned independent research to better understand the influence and impact of proxy voting advisors and ESG rating agencies on actions and reporting by FTSE 350 companies and on investors. This report presents the findings of that research.

Sustainability in the Spotlight: Has ESG Lost Momentum in the Boardroom?

Sat, 24 Jun 2023 08:31:29 GMT

In Spencer Stuart’s 2023 ESG survey, they seek to understand more about how rapidly the financial and ESG climate has changed over the past year.

2023 Audit committee survey insights

Tue, 20 Jun 2023 08:35:20 GMT

Here are the results and takeaways from KPMG’s latest survey of audit committee members and chairs.

The path to the chair

Thu, 15 Jun 2023 08:38:23 GMT

The demands of public company chairmanship have grown exponentially. Heidrick & Struggles had discussions with a number of serving chairs to offer insights on how to prepare for the role.

Improving the Ethnic Diversity of UK Business: An update report from the Parker Review

Fri, 09 Jun 2023 08:51:46 GMT

96% of FTSE 100 boards had ethnic minority directors at the end of 2022; but more can be done, and the Parker Review is now extending its targets to include senior management and a selection of private companies.

Hidden Talent: Diversity & Inclusion in the FTSE All-Share report

Sat, 03 Jun 2023 08:56:05 GMT

The number of women on FTSE All-Share boards has continued to rise this year, but a new report from Women on Boards Uk in partnership with Protiviti, highlights deep concerns about the lack of skills and diversity of expertise among FTSE All-Share executive board members – both male and female.

IBE guidance for developing an ethical business culture consultation

Thu, 01 Jun 2023 09:05:25 GMT

This draft guidance from the Institute of Business Ethics is intended to provide practical recommendations for boards as they seek to promote an ethical business culture within their organisations.

Trustee Governance Survey 2023

Wed, 31 May 2023 09:16:14 GMT

WTW surveyed 140 trustees, pension managers and other stakeholders during April 2023 on the future of governance of trust-based pension schemes and how the role of the trustee is evolving in the current environment.

UK Corporate Governance Code Consultation

Fri, 26 May 2023 09:18:48 GMT

Following the consultation last year on Restoring Trust in Audit and Corporate Governance, the government invited the FRC to strengthen the UK Corporate Governance Code in specific areas. The FRC have now launched a public consultation on the proposed revision to Code. This limited revision aims to enhance the Code’s effectiveness in promoting good corporate…

Why Generative AI Should be on Your Board Agenda

Mon, 15 May 2023 09:22:57 GMT

Generative AI and Large Language Learning Models (LLMs) like ChatGPT are so new they are barely on the agenda; but they should be says Odgers Berndtson.

Board effectiveness: a survey of the C-Suite

Fri, 12 May 2023 09:25:11 GMT

To explore how executives perceive board performance, PwC and The Conference Board conducted our third annual survey of more than 600 public company C-suite executives in the fall of 2022.

Board Monitor UK 2023

Thu, 11 May 2023 09:34:07 GMT

Heidrick & Struggles Board Monitor UK 2023 shows UK boards in 2022 gained a deeper understanding of the risks of volatility.

Rewiring Boardroom Cybersecurity

Tue, 09 May 2023 09:37:46 GMT

Boards must act now to safeguard their organizations from cyberattacks. This playbook from Egon Zehnder lays out tangible actions for boards to strengthen cyber-preparedness and protect organizations from current and emerging threats.

Audit Committees and the External Audit: Minimum Standard

Sat, 06 May 2023 09:40:29 GMT

The Financial Reporting Council (FRC) has announced the Audit Committees and the External Audit: Minimum Standard. The primary objective of the Standard is to enhance performance and ensure a consistent approach across audit committees within the FTSE350.

Spring 2023 BDO Board Pulse Survey

Fri, 05 May 2023 09:43:27 GMT

The Spring 2023 BDO Board Pulse Survey identifies the most pressing board challenges and outlines the strategies being deployed to address them, based on the responses of over 200 public company directors serving all size companies across a variety of industries.

The Effective Board Chair Webinar resources

Wed, 03 May 2023 09:47:33 GMT

Following our popular webinar, The Effective Board Chair on 26th April 2023, we have put together the PowerPoint presentation and a list of answers to the questions posed during the webinar that could not be answered in the time. You can find the full webinar on the below link. PowerPoint Presentation: Unanswered Questions:

Regulatory exposures – Directors’ and Officers’ Liability Insurance Survey 2023

Mon, 01 May 2023 09:49:42 GMT

Regulatory risk continues to be a top risk for directors and officers (D&Os). What does this look like from an ESG and crypto perspective?

How corporate governance can help build a more sustainable world

Fri, 28 Apr 2023 10:27:54 GMT

EY reports on the European Corporate Governance Conference 2022 which explored the role of boards in driving the transition to a sustainable economy.

10 Board Actions to Boost Corporate Sustainability

Mon, 24 Apr 2023 10:30:07 GMT

How can boards boost corporate sustainability? RRA share 10 actions that will drive success.

Are Boards and CEOs Ready to Navigate This Era of Global Disruption?

Fri, 21 Apr 2023 10:32:17 GMT

The era of benign globalization has passed, and boards in the U.S. and internationally must urgently prepare for risk. Spencer Stuart offer three key levers for boards to prepare for these challenges.

PwC’s Global Crisis and Resilience Survey 2023

Wed, 12 Apr 2023 10:35:15 GMT

PwC’s Gobal Survey looks at how organisations are adapting to constant disruption by transforming their approach to building resilience.

Directors Quarterly: April 2023

Mon, 10 Apr 2023 10:38:04 GMT

This issue of KPMG’s Directors Quarterly looks at AI governance and oversight; preparing for quantum computing; diversity and driving innovation and African American board representation.

Culture moves up the board agenda

Sat, 08 Apr 2023 10:40:08 GMT

Boards influence organizational culture through their every action. It is no coincidence that the world’s most valuable and successful companies tend to have highly distinctive cultures.

Corporate Governance Review 2022: Matching words with impact

Tue, 04 Apr 2023 10:42:57 GMT

What board trends are exposing companies to new risks? Grant Thornton’s latest Corporate Governance Review shows how companies are using the UK Corporate Governance Code (the Code) as a blueprint for navigating uncertainty following three years of macro-upheaval.

Diversity and inclusion disclosure – what to expect in the 2023 AGM season

Sat, 01 Apr 2023 10:45:33 GMT

Dentons summarises what they expect to be disclosed at the 2023 AGM season, which must include enhanced disclosures around diversity and inclusion.

Directors’ and Officers’ Liability Survey 2023

Fri, 31 Mar 2023 11:30:39 GMT

In this volatile economic environment, it is more important than ever to consider where your fellow directors and risk managers see the pressure points and what liabilities are concerning them the most.

Are You Building a Cabinet or Building a Board?

Mon, 27 Mar 2023 11:33:03 GMT

Egon Zehnder suggests it falls to the Chair to ensure that specific appointments do not create a board of rivals, but instead, a harmonious chorus.

Evidencing the Contribution of Gender Balance to Board Effectiveness

Wed, 22 Mar 2023 12:37:16 GMT

The 30% Club, in partnership with board advisory specialists Lintstock, has today issued new qualitative analysis based on the engagement of male and female directors in 100 FTSE board reviews in a report titled Evidencing the Contribution of Gender Balance to Board Effectiveness.

The survey showcases the difference gender diversity makes to the running of corporate boards, with a significant finding that women are more likely than men to focus on emerging issues, notably company culture and employee development.

In addition, female directors were also more likely to offer criticism and recommendations for improvement on both their own performance and their business activities.

Becoming a non-executive director

Sat, 11 Mar 2023 12:40:06 GMT

In this newly expanded fourth edition of Spencer Stuart’s Becoming a non-executive director, they throw some light on what board work entails and the steps involved in getting a suitable non-executive directorship for the first time.

Women in Work Index 2023

Fri, 10 Mar 2023 12:47:43 GMT

PwC’s Women in Work Index shows progress towards gender equality at work across the OECD has been exceedingly slow over the last 10 years, with a persistent gender pay gap of 14%, down only 2.5 percentage points since 2011.

Board Monitor US 2023

Wed, 08 Mar 2023 12:51:23 GMT

Heidrick & Struggles Board Monitor US 2023 shows progress toward greater diversity slowed this year on Fortune 500 boards.

EMEIA board priorities 2023: how to shape tomorrow’s board agenda today

Fri, 03 Mar 2023 12:56:02 GMT

To understand today’s challenges and their impact on the board’s priorities, EY teams explored the most pressing issues facing boards.

AIM Directors’ Remuneration Report 2023

Wed, 01 Mar 2023 12:58:22 GMT

For the seventh year running, BDO have researched the remuneration of directors of AIM listed companies. The latest AIM 100 Directors’ Remuneration Report reveals a strong growth in C-Suite remuneration packages, ahead of volatility that have constrained market activity this year.

Nominating & Governance Committee Priorities for 2023

Tue, 28 Feb 2023 13:01:31 GMT

BDO recommends that these should be priorities for 2023 the Nominating & Governance Committee – CEO and director succession and refreshment, governance policies and procedures, reporting and stakeholder engagement.

UK SOx: What you need to know

Fri, 24 Feb 2023 13:04:42 GMT

UK SOx is the unofficial name given to the UK new corporate governance regime. The Government has announced details of its corporate governance reforms which will move the UK regime closer to the US Sarbanes-Oxley regulations.

2022 Japan Spencer Stuart Board Index

Fri, 17 Feb 2023 13:06:52 GMT

The Japan Spencer Stuart Board Index 2022 analyzes the current status and challenges of corporate governance of Nikkei 225 companies and TOPIX 100 companies representing Japan, and compares the results with data from major countries and Spencer Stuart’s observations.

MSCI Women on Boards Progress Report 2022

Fri, 10 Feb 2023 13:13:30 GMT

MSCI’s annual report that tracks the state of gender diversity on corporate boards.

PwC’s Global Investor Survey

Wed, 08 Feb 2023 13:15:41 GMT

In response to demands from investors, businesses have made significant progress on ESG commitments. But PwC’s Global Investor Survey reveals there is more work to be done, particularly to address concerns about transparency and data.

The Next Frontier of Board Diversity

Sat, 04 Feb 2023 13:21:56 GMT

Egon Zehnder’s Global Board Diversity Tracker has found that progress has been made on getting more underrepresented minorities onto corporate boards. But this same level of progress hasn’t translated to committee chair and board chair/lead director roles.

How the general counsel role is changing in 2023

Sat, 04 Feb 2023 13:19:11 GMT

Four sitting general counsels share their insights with Heidrick & Struggles on how current and aspiring GCs can be most effective as their role continues to expand and shift.

Global Corporate Governance Trends for 2023

Fri, 03 Feb 2023 13:24:11 GMT

For the eighth consecutive year, Russell Reynolds Associates interviewed dozens of experts to identify the governance trends that will affect boards in 2023.

Boards and Recession – Europe

Tue, 31 Jan 2023 13:27:40 GMT

Following Odgers Berndtson’s Boards and Recession reports last year, their global experts provide their perspectives on how Boards are reacting to the current economy in Europe.

2023 EY & University of St.Gallen Family Business Index

Thu, 26 Jan 2023 13:29:43 GMT

The 2023 EY and University of St.Gallen Family Business Index reveals the largest family enterprises are growing faster than the global economy.

Executive remuneration in FTSE 250 companies – 2022 report

Tue, 10 Jan 2023 13:38:09 GMT

This report from Willis Towers watson provides a final update for the 2022 Annual General Meeting (AGM) season on key pay developments this year. It also sets out an overview of executive and non-executive director market data for companies in the FTSE 250.

26th Annual UK CEO Survey

Thu, 05 Jan 2023 13:40:06 GMT

PwC’s 26th Annual CEO Survey shows UK CEOs are under no illusions that after a tough few years things are about to get tougher still.

KPMG Directors Quarterly: January 2023

Mon, 02 Jan 2023 13:43:27 GMT

Priorities for board and audit committee agendas, KPMG’s chief economist on measuring what matters, and a financial reporting and auditing update.