Corporate Governance Trends for Boards in 2020

As we transition into a new decade there are trends that will be of increasing importance to boards. 

Some were apparent in the closing years of the 2010s and others are relatively new on the scene.

Board composition

The requirement for women directors has developed into a recognition of the benefits of a wider interpretation of diversity. Not only gender but also ethnicity, race, sexual orientation and general background and experience.

In addition, more directors are expected to stand for reappointment on an annual basis; a greater expectation for term limits, performance evaluation and retirement requirements, leading to regular refreshment of the board to remain relevant.

The need for diversity and adoption of limits of the number of public company board seats a director may hold, has resulted in public companies needing to expand the pool of potential directors.

Corporate purpose

Purpose has become important following the introduction of the 2018 UK Corporate Governance Code and a shift away from the shareholder primacy theory.

This has proven a major challenge for many boards and will involve ongoing attention. They should plan to allow time at board level and throughout the organisation for this work.

Digital trends and cyber security

Boards of directors need to be up-to-date on the latest technological advancements, such as Artificial Intelligence and Machine Learning, and have an in-depth understanding of how these emerging technologies will affect their business.

Cyber security will remain an important challenge and stakeholders will want to see how well boards respond to cyber-attacks and implement preventative measures to ensure that customers’ data remains as secure as possible.

With the general public more aware of how their data are processed and used, investors will also be paying close attention to how well boards of directors manage to protect user information.

Directors with a cyber-security background will be in high demand.

Environment, social and governance (ESG)

This is the year in which the focus on ESG becomes the leading trend globally.

The campaign by Greta Thunberg, including speeches at the UN Climate Summit and the World Economic Forum at Davos, has brought public and business focus on sustainability, specifically environmental sustainability.

Boards will face increase pressure from stakeholders, investors and activists across the globe to make decisions that are not only healthy for business, but for the planet too. Consumers are more aware than ever about how their actions or purchases can affect the world we live in and are, therefore, making much more educated decisions about where they take their business.

Executive compensation

Executive compensation remains and issue with pressure from activists, media and regulators for greater transparency and reporting.