Now more than ever, companies must be confident in their values and purpose, especially in a fast-paced and uncertain global landscape, where political, economic, sociocultural, and environmental paradigms have undergone transformations in which technology plays a key role.
The challenge is to adapt with conviction. To achieve this, companies need to rethink who they are, where they are headed, how they will get there, and, most importantly, understand why they have these objectives. This must be done through governance, with a solid board of directors, committed not only to the success of the business strategy but also to contributing to society.
To achieve this, companies must stay attuned to corporate trends that aim at effective corporate governance.
1- Independence:
There has been growing interest in promoting board independence, as it helps mitigate potential conflicts of interest while improving objectivity and impartiality in decision-making. Independent directors bring fresh perspectives that allow for strategic decision-making, safeguarding the company’s interests in both the short and long term.
2- Diversity, Equity, and Inclusion (DEI):
Today, it is essential to emphasize the value of diversity in boards and management positions. Diversity can be understood through various criteria, such as gender, nationality, age, disability, ethnicity, and even race. Ultimately, the idea is that diversity brings different perspectives and experiences, enabling better decision-making and the identification of opportunities and risks that may otherwise be overlooked.
There is a positive correlation between increased gender diversity on boards and higher financial profitability, better environmental, social, and governance (ESG) performance, and improved stock performance. Having diverse perspectives on boards and teams in general is key to greater innovation, creativity, and flexibility.
3- Performance Evaluation:
Performance evaluations of directors present a significant opportunity to improve their effectiveness and strengthen corporate governance, as they help assess their management, identify strengths and weaknesses, and demonstrate their commitment to continuous improvement, aligned with the company’s purpose. Furthermore, they promote leadership and allow for the review of the board’s structure, dynamics, and decision-making processes. Board evaluations foster productivity and forward-thinking, while also ensuring trust among stakeholders.
Generally, self-assessment is the most common method used by boards to evaluate their performance. However, it is important also to consider external evaluations by an expert third party to increase objectivity and ensure that expectations are being met and effectiveness is being achieved.
4- Executive Compensation and Incentives:
There is growing attention to CEO and executive compensation, as it has often been considered excessive and unfair compared to average company salaries, especially in the context of a global economic crisis. Additionally, there is concern about the misalignment between compensation and goals, as incentives are frequently overly focused on short-term targets, neglecting long-term objectives.
For this reason, implementing a fair and comprehensive compensation system with appropriate incentives is a good initiative. This system should motivate both productive and ethical performance in the short and long term, through a competitive structure that ensures pay equity and equality across the organization. How objectives are achieved is more significant than ever, so not only does the achievement of goals matter but also how they are reached.
5- Stakeholder Governance:
Boards and executive teams must take into account the interests of their stakeholders (customers, employees, suppliers, communities, shareholders, among others) when determining the company’s values, strategy, and overall direction. This signals recognition of all stakeholder groups, as they are, directly or indirectly, influenced by the company’s operations. Therefore, a good relationship with stakeholders is key to the business’s success. Stakeholder governance, in practice, involves active board involvement in ensuring that, for any strategic decision, both short- and long-term, the impact on these groups is considered, always aiming for mutually beneficial relationships.
6- Cybersecurity and Artificial Intelligence (AI):
Cybersecurity has become an increasingly important concern for companies, due to the evolving nature of crime as technology advances, coupled with the lack of regulation. On the other hand, the risks of tools such as Artificial Intelligence (AI) are diverse, and some are still unknown. This could lead to significant financial losses, damage to reputation, exposure of private information, and other negative consequences for both the company and its employees, as well as for its customers.
Therefore, boards must ensure that the company has internal policies and protocols in place to prevent crimes stemming from the misuse of technology. It’s essential to implement strong cybersecurity measures and make responsible use of AI, alongside continuous monitoring and oversight.
7- Sustainability:
The growing demand from regulators, investors, and consumers is impacting the profitability and financial results of companies that fail to commit to ESG criteria. In this context, boards must prioritize sustainability from a strategic perspective to mitigate risks and successfully position the company in a rapidly evolving world. Boards must emphasize their sustainable actions, with clear agendas, measuring the effectiveness of their results to ensure that these practices are not just marketing. For this, a solid governance framework, conscious of its impact and committed to sustainable action, is essential.
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Considering these seven trends will support the management of the board and executive team, both in the company’s business and sustainability strategies. Effective corporate governance, capable of comprehensively assessing the impact of business on the environment and its stakeholders, will be a success factor in current times, where the company’s economic value is not the only consideration. It is equally important to align what the company promises with what it truly does—whether its actions align with its stated values and purpose.
