As we look ahead to 2024, several corporate governance trends are likely to continue evolving and will be front and center.
For corporate boards, navigating this uncertain landscape demands a keen eye on not just economic indicators but also emerging trends in the realm of corporate governance.
- The Political Pendulum and its Economic Sway: 2024 marks a watershed moment in the United States. The presidential election poised to send impact through the economic landscape. Depending on the outcome, boards must prepare for potential shifts in regulatory priorities, trade policies, and fiscal spending. Increased government intervention in areas like climate change and social welfare could significantly impact boardroom discussions around stakeholder engagement and ESG commitments. Conversely, a more deregulatory stance could favor business interests, lower taxes and capital investment incentives. Understanding the potential outcomes and their implications for the company’s industry and markets will be crucial for boards to formulate strategic plans and mitigate risks.
- 2. Data Privacy Takes Center Stage: The specter of stricter data privacy regulations is no longer a distant threat but an imminent reality. Stringent laws like Europe’s General Data Protection Regulation (GDPR) are setting the global standard. The United States are expected to follow suit. This heightened emphasis on data privacy will necessitate robust data governance frameworks within companies. Transparency and accountability in data use will be paramount to avoid reputational damage and potential legal repercussions. Furthermore, the potential for increased regulation around AI algorithm drift, where AI models deviate from their intended function due to biased data or changing environments, will require boards to actively monitor and audit AI deployments to ensure fairness and prevent discriminatory outcomes. Creating a data policy is a good idea for management and board review.
- The Great Reshuffling: From Globalization to Reshoring: The tides of globalization are receding, revealing a new emphasis on regionalization and reshoring. The disruption of global supply chains witnessed in recent years, coupled with rising geopolitical tensions, is prompting companies to reconsider their outsourcing strategies. Boards can expect increased pressure to move operations closer to home or diversify suppliers across more friendly regions. This “Nearshoring” or “Homeshoring” trend will necessitate careful evaluation of production costs, talent pools, and logistical hurdles. Companies successfully navigating this shift will not only mitigate supply chain risks but also potentially create new jobs and strengthen local economies. Additionally, the ongoing trade relationship with China will need to continue for most businesses. Addressing concerns over supply chain visibility and human rights issues, will demand new reporting compliance.
- Activism in the Age of Inflation: The threat of inflation will continue in 2024. In this environment, board activism from shareholders is likely to rise. Investors will demand that boards demonstrate clear strategies for cost-cutting, efficiency improvements, and maximizing shareholder value. Pressure to right-size businesses, divest non-core assets, and optimize operations will increase. Boards must be prepared to engage with shareholders proactively, transparently explain strategic decisions, and deliver convincing evidence of their commitment to long-term value creation. If your company is performing in the lower quartiles vs. peers expect activist attention and unwanted scrutiny.
I believe these trends will shape the corporate landscape of 2024. Boards that adopt a forward-thinking approach, embrace agility, and prioritize a stakeholder-centric mindset will be best equipped to navigate the coming year ahead. By understanding the drivers of these trends, anticipating their impact, and proactively implementing sound governance practices, boards can help their management teams future-proof their companies.