What does the year have in store for directors? The Governance Leadership Centre’s Louise Pocock considers the key governance trends for 2016.
Governance driving performance
In recent years, we have seen a shift in thinking about corporate governance – from an administrative “box-ticking” exercise to a driver of organisational performance. This year, we are likely to see more analysis around what makes an effective board and how governance affects organisational performance.
Board composition, and its impact on the performance of boards and organisations, is likely to remain a key issue. While the debate around diversity in Australia is still largely focused on gender, we may see a broadening to other dimensions of diversity such as background, ethnicity/race and age. There will be continued debate in relation to the value of independent directors, which the AICD's Governance Leadership Centre (GLC) will contribute to through its research in the area.
With the continued disruption of traditional business models across many sectors, digital disruption and the imperative for businesses to adapt and innovate is likely to be front of mind for boards. Many boards will face important strategic decisions necessary to ensure that their businesses remain competitive in a dynamic environment, and to ensure that innovation at all levels of the organisation is being fostered and captured.
Long-term value creation and sustainability
As concerns about short-termism grow, the role that boards can play in driving long-term value creation will become increasingly important. There will also be pressure on boards to ensure that their companies are providing information to the market that allows investors to assess long-term corporate sustainability and financial health, including greater transparency around environmental, social and governance (ESG) considerations.
AGMs and shareholder engagement
It is likely that shareholder attendance at AGMs will continue to fall. Boards will need to be more innovative in terms of how they engage with investors, and are likely to increasingly make use of technology to promote shareholder engagement (e.g. webcasting AGMs and social media). The AICD’s Director Sentiment Index, released late last year, showed that, for the first time, a larger proportion of directors considered AGMs to be dysfunctional (35 per cent) than working well (32 per cent). The debate about the efficacy of the AGM may have reached a “tipping point” in terms of the need for AGM reform.
The board has an important role to play in setting corporate culture, and this year we are likely to see growing recognition of the importance of good corporate culture. This is particularly so in the wake of events last year such as the Volkswagen emissions scandal, which revealed issues with Volkswagen’s governance and corporate culture. Last year ASIC took a strong interest in culture and is pushing for law reform in this area.