Governance 2021: What to Expect

Governance Trends

Continuing our series of blog posts on 2021 and what will be trending for the GRCC world, today we tackle governance.

As we’ve discussed in the IGCA glossary, governance, or corporate governance to be precise, “refers to the many rules, processes, systems and practices put in place to successfully direct a company and define its overall corporate behavior.”

More specifically, “governance incorporates all major aspects of management including action plans, KPIs, internal controls and procedures and financial disclosure, as well as cyber-security, compliance and risk management, just to list a few.”

As is routine by now, find below the main topics the IGCA team believes we will be focusing on as governance professionals in 2021.

Shareholder Engagement to Be Prioritized

During these difficult and somewhat volatile times, it is imperative for boardrooms to remain in constant communication with their company’s shareholders and investors.

Boardrooms should do everything in their power to engage them in discussions on what they are doing to overcome the risks and challenges posed by both COVID-19 and the sociocultural disturbances experienced in 2020.

More specifically, issues such as ethnic and gender diversity in the boardroom, executive pay, human capital management (HCM) and plenty others are of great interest to shareholders, and board members should make a concerted effort to relay information on their plans for each.

This also entails paying heed to shareholder proposals or campaigns, which, according to JP Morgan’s 2020 Proxy Season Report, increased in 2020 in the US, the United Kingdom and Japan and have focused to a great extent on environmental, sustainability and governance (ESG) issues.

Social & Environmental Issues Rank at the Top

In its Corporate Governance Outlook 2021, Equilar, one of the leading organizations providing data on corporate leadership, emphasizes the importance social and environmental issues, particularly diversity in the boardroom, will have in the governance world during this new year.

According to Equilar, a trend that grew in importance during 2020 will remain a focus in 2021 as companies look to “address the topic at a micro level within their organizations” and promote greater diversity among upper management and within the boardroom.

Corporations, explains Equilar, have been pretty adamant about disclosing “diversity-related information in their board or director assessments and board composition policies” with a vast majority of companies releasing details on the gender and ethnic composition of their boards and their policies related to these issues.

This trend shows that more and more companies will be openly providing this type of information given the current social issues revolving around inclusion, equality and human rights as seen from both the #MeToo and Black Lives Matter movements.

However, there is still plenty of work left to do.

According to PwC’s 2020 Annual Corporate Directors Survey, “while the vast majority of survey respondents said that companies should be doing more to promote gender and racial diversity in the workplace, only 39% said they supported diversity and inclusion goals for board composition and as a factor in executive compensation plans.”

All in all, however, focusing on ESG is ultimately good for business.

As quoted in a post on Harvard Law School’s Forum on Corporate Governance, “a recent McKinsey study that examined the link between ESG and value creation found that strong ESG performance can help companies tap into new markets and expand in existing markets, reduce costs via sustainability strategies, reduce the risk of regulatory and legal interventions, and increase talent retention and employee productivity.”

Human Capital Management (HCM) Surges

COVID-19 and all of the issues it brought forth during 2020 has made employee concerns and human capital management a new point of focus for corporate leaders.

What is human capital management exactly?

Human capital management, as defined by bambooHR, is “the set of practices an organization uses for recruiting, managing, developing, and optimizing employees to increase their value to the company.”

During the ongoing pandemic, considering the huge effect the crisis has had on the workplace, stakeholders and corporate boardrooms have paid increasing attention on employee wellbeing and the actual state of their company’s human capital.

Discussions over talent strategy and human capital management should remain paramount moving into 2021.

As succinctly put by global law firm Norton Rose Fulbright, “boards should make or reaffirm oversight of HCM and talent as a strategic priority,” helping “their companies strategize for HCM challenges beyond the near horizon, and integrate information about human capital and talent across company communications.”

With this in mind, any corporate agenda should include “return-to-work, employee health and safety, employee engagement, diversity and inclusion,” writes Michael Peregrine, a partner at McDermott, Will & Emery, in an article for Forbes.

Handling Cyber Threats in a Remote Work World

Another side effect of the COVID-19 pandemic has been the rise of cyber attacks.

With so many people working from home and AGMs being held online, the threat of ransomware and other cyber threats have grown quite rapidly during these times of COVID.

Boardrooms in 2021 will need to pay very close attention to the risks involved with cyber-security.

According to Martin Lipton, a founding partner of law firm Wachtell Lipton Rosen & Katz, “investors are making clear that board oversight of cybersecurity risks should be a priority,” pushing firms to “implement and maintain comprehensive cybersecurity risk mitigation programs, data and system testing procedures, and cyber incident response plans.”

Furthermore, KPMG’s Board Leadership Centre recommends that companies continue to work on “monitoring management’s cybersecurity…with greater IT expertise on the board and relevant committees, company-specific dashboard reporting of key risks, and more robust conversations with management focusing on operational resilience and the strategies and capabilities that management has deployed to minimize the duration and impact of a serious cyber breach.”

Overall, the issue of cybersecurity has become even more important considering that the World Economic Forum listed “large-scale cyberattacks [and a] breakdown of critical information infrastructure and networks” as one of the top ten long-term risks to be faced by organizations moving forward.

Virtual Annual General Meetings (AGM): Here to Stay?

Annual general meetings have never been the same since COVID-19. The rise of remote working or work from home, plus the many travel bans, has led AGMs to be pushed online. And until the virus is contained, this will remain the case for the foreseeable future.

Still, indicators show that even once the pandemic ends and everything returns to some semblance of normality, virtual-only AGMs might become the preferred modality for a variety of reasons.

First of all, it allows more people to be involved in the meetings, capturing a broader spectrum of opinions and perspectives. Board members who couldn’t regularly attend meetings as a result of distance or other constraints can now participate without issue.

Second, virtual-only AGMs lower both the company’s expenses and carbon footprint, a good thing when it comes to corporate social responsibility and other ESG-related issues.

Third, various studies show that the time spent on a virtual-only AGM is significantly lower, allowing for extra time to be dedicated to other equally important matters.

Finally, as explained by EQS Group, a firm offering tech solutions for compliance and investor relations, today’s virtual conferencing platforms allow for “sophisticated Q&A and messaging which ensures shareholders can effectively hold the board to account” and make the entire process “more transparent” by “substituting paper for digital voting.”

Are there any other corporate governance trends you can think of that maybe we have left out?

Submit them as a comment and let’s start a conversation!

If you have any questions or comments, do not hesitate to reach us at info@igca.org. We’d be happy to help.

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