The scale, scope, and diversity of the governance environment changed dramatically in 2020. As COVID-19 turned business and society on its head, company secretaries had to navigate the overnight pivot to remote working, ensuring that the tools and processes to support virtual governance were acquired and implemented for directors and executives, who found themselves making business-critical decisions in a very unfamiliar environment.
Simultaneously, the principles by which the outcomes of those decisions would be judged accelerated along the transformation pathway from shareholder to stakeholder-led. Alongside the growing activist investor calls for a more robust approach to environmental, social and governance (ESG) issues was the heightened social justice awareness caused by the tragic death of George Floyd, together with the increasing profile of environmental concerns prompted by extreme climate events. The end of 2020 had a very different complexion from a governance perspective than it did at the start.
Corporations and their boards are now starting to look strategically at the recovery phase and how to build back better in this much-changed environment. For governance professionals, there are some key opportunities to add value and direction.
1. Define the digital roadmap to recovery
The extent and effectiveness of the digital response to COVID-19 would not have been possible even ten years ago. The power of virtual tools and digitally-enabled processes to ensure organisational resilience and continuity was abundantly proven. This has fundamentally altered expectations around the way people work and the tools they use. Forrester predicts that remote work will rise to 300% of pre-COVID-19 levels as businesses recognise both the operational and cultural benefits of flexible working.
Many governance teams were pleasantly surprised by the relative ease with which they and their boards adapted to a virtual environment. Historical objections and pain points were overcome when there was simply no alternative. As with the rest of the organisation, there are clear benefits to ensuring the board is resilient and can continue to function, collaborating and accessing relevant information promptly, under less-than-ideal circumstances.
Moving forward, this delivered a mandate to examine disparate processes and develop the digital infrastructure to build them into a broader operational governance strategy. In a virtual landscape, the security that has always surrounded board business must remain in the form of ultra-secure workflows and applications to facilitate communication and collaboration. At the same time, reporting must continue to be streamlined, ensuring data from distributed sources flows to the board.
There is ample opportunity to innovate. Governance professionals should define a digital roadmap to recovery that builds on everything learned over the past year to set firm foundations for the challenges ahead.
2. Put ESG front and centre
Far from diverting attention from the systemic social and climate emergencies faced by humanity, the pandemic put them into sharper focus as inequalities emerged and extreme weather events unfolded. The impact of corporations on people and the planet is under scrutiny and defining a route to sustainable value creation is imperative for businesses to reflect the values and priorities of the stakeholders that matter.
In practical terms, organisations must identify where they have good data on ESG issues and where it is lacking. Third-party reporting is already providing metrics to investors; businesses want to shape the narrative and demonstrate transparency and commitment to full reporting, they must begin benchmarking performance.
The World Economic Forum’s sustainability metrics, which are set to become the foundation of a standard reporting framework, are a good place to start providing clear, comparable data on the organisation’s ESG performance.
3. Elevate diversity and inclusion
Diversity at the most senior levels of global business came under the spotlight in 2020, as society confronted the extent of racial inequality. Institutional investors have become rightfully vocal about the need for diversity among board directors, and organisations need to act.
One of the key issues that has faced companies is the tendency for boards to self-perpetuate in their image, drawing candidates from a limited socio-economic pool based on personal connections and experience. This approach must change for progress to be made.
There are several steps that businesses can take to promote diversity and inclusion in the highest corporate positions. This can include appointing external search agencies and stipulating diversity criteria. Still, businesses can also equip their boards directly with a database of diverse candidates through programmes such as Diligent’s modern leadership initiative.
4. Embed and sustain board effectiveness improvements gained in the past year
Boards embraced new ways of working and collaborating, and efficiencies resulted. The days when secretariat teams moved heaven and earth to synchronise diaries to get directors round the table in-person four times per year may become a thing of the past.
Instead, we are entering an era where governance is a more frequent, less formal but arguably a more transparent undertaking that incorporates real-time insights and can handle rapid decision-making when directors aren’t in the same room or even the same time zone.
One of the big savings has been the most scarce of resources, time. Without a requirement to travel, directors have more opportunity to focus on the topics that matter. Once achieved, this advance in board effectiveness should not be relinquished.
In this new virtual and data-driven era, connectivity and information will be strategic enablers. Governance professionals have an opportunity to drive the implementation and adoption of tools and processes that will empower boards to respond at the fast pace a complex and uncertain environment requires. As the experts on whom boards and executive teams depend, they are set to usher in an age of proactive, modern governance that will ensure corporations survive and thrive in the post-pandemic world.
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Diligent is the headline sponsor of both our Governance Ireland and Governance 2021: The Next Chapter conferences.