Every year there is a shift in corporate governance standards in an effort to evolve along with the rapidly changing business landscape and stay aligned with the shifting priorities of investors.
I encourage boards to kick off 2020 by evaluating these corporate governance topics:
1. Increased Focus on Human Capital: In 2019 there was an increase in CEO turnover rates and CEO terminations. More than 1,000 CEOs stepped down during the first three quarters of 2019, according to a report published by the staffing firm Challenger, Gray, & Christmas — 1,160 executives, to be exact. This trend should prompt boards to re-evaluate their search and succession practices and to increase their focus on being sure there is a “ready to go emergency CEO on the bench. Expect the real time nature of social media to pressure boards in a crisis situation to make faster decisions. I.e. once the scandal hits there is potentially an expectation of inevitable CEO change as recently happened at Boeing. Be prepared.
2. Millennials Value Training and Organizational Development: Millennials are a large percent of customers, workforce, vendors, partners, and investors. By 2020, Millennials are predicted to comprise half of the American workforce, and by 2025, 75 percent of the global workforce. Companies including Ernst & Young and Accenture have already reported that Millennials make up over two thirds of their entire employee base. The millennial workforce thrives and is inspired by companies that forward invest in their training and development. Look at your HR organization and redefine it for this decade as a competitive differentiater by investing in the internal talent pool. Expect to see continued investor pressure for boards to reach minimum 35% gender diversity and an increased focus on ethnic diversity. Institutional investors will begin focusing on term limits as these policies from Europe cross the pond.
3. Evaluating Corporate Purpose: In 2020 boards will need to address the topic of “the purpose of the corporation” and perhaps expand their lens to include various constituencies in addition to just the shareholders. In 2019 the Business Roundtables “Statement on the Purpose of a Corporation” where 180 CEO’s signed a statement on companies being responsive and committed to delivering value not only to shareholders but to all stakeholders including customers, employees, suppliers, communities, and of course, shareholders. This included “embracing sustainable practices” across the businesses. This broader definition of stakeholders is widely supported by the governance groups inside the major index funds and pension funds. Boards will need to discuss how the company can position itself and communicate how they are ethically run, purpose driven businesses with high integrity and standards.
4. Business Judgement re: Risk and Compliance: Caremark standard for director risk oversight will require greater emphasis and focus from board members to ensure that rigorous risk-management programs are in place. Boards should work closely with management and support their efforts to closely monitor risk factors. Depending on your companies specific industry (i.e. CPG, Food and Beverage, etc.) boards need to provide an appropriate level of focus on its main compliance risks whether that be food safety risks, OSHA risks, etc. There is an ever increasing set of demands from regulators from GDPR privacy to FCPA and everything in between in the full range of compliance. Compliance is a topic that needs to be moved up on the board agenda.
5. Boards Should Prepare for Digital Transformation: Challenge management to present to the board an assessment of where they are on digital transformation and tech enablement. For every product/service it is a bigger risk than cyber. Understand where your company is in terms of a friction-less customer journey when transacting on the web, to taking cost out of the supply chain using AI and ML insights. What else can be done to tech enable the products/services (i.e. IoT, voice enablement, predictive maintenance, etc.) Is your workforce keeping up using the latest tech tools and having the right level of tech skills in-house? Ask for a digital scorecard.