From Engine No. 1 to Starboard Value’s victory over workforce technology provider Box, shareholder activism is nothing new for today’s boards. What is new: activist attention on — and action against — individual directors.
Starboard Value attributed much of Box’s disappointing results to CEO Aaron Levie, calling the company’s decision to accept a $500 million equity investment from KKR “garbage” in a televised interview. Oasis helped lead the ouster of Toshiba’s chairman after the Japanese conglomerate announced plans — later revised — to spin out its industrial and tech segments into separate companies. On the other side of the world, the Children’s Investment Fund launched a “bareknuckle campaign” to oust the CEO of Canadian National Railway over climate and ESG.
These examples are illustrative of an overarching trend according to recent research by Insightia, a Diligent brand. Across the globe, the number of management director candidates receiving less than 80% support increased from 2020 to 2021: from 1,683 to 1,918 in North America, from 206 to 298 in Europe, and from 535 to 642 in the Asia Pacific region.
Stakeholders and shareholders continue to shine an increasingly bright spotlight on environmental, social and governance (ESG) issues. The ongoing global pandemic, questions of social justice and emerging geopolitical risks have driven an increased demand for companies to demonstrate responsible, ethical and sustainable business strategies and operations.
Now regulators are intensifying their own scrutiny:
• In the United States, the Securities and Exchange Commission (SEC) is moving toward mandatory disclosures of the risks corporations face from climate change, as well as actions to manage these risks
• The G7 nations made their own push toward mandatory climate reporting, proposing requirements that follow the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD)
• The EU’s High-Level Expert Group launched its Sustainable Finance Disclosure Regulations (SFDR) for the finance community, and its accompanying concept of Principal Adverse Impacts (PAIs), which cover sustainability factors that include both environmental and social issues
These measures have big implications for boards, executives, legal and investor relations teams. Accessible and auditable metrics are fast moving from nice-to-haves to must-haves.
Support for environmental proposals has never been higher, and companies are feeling the pressure from stakeholders of all kinds: not only investors, but also customers and employees.
In his January 2022 letter to CEOs, BlackRock CEO Larry Fink warns that organizations that fail to plan for a carbon-free future risk being left behind. Companies seen as not taking ESG and climate change seriously will be particularly vulnerable in today’s activist shareholder environment.
The climate crisis can have a huge impact on your business – and while the longer-term implications may be obvious, there are a number of specific operational and business risks that your organization may not have considered. Below we outline five key climate change risks you could be in danger of overlooking – and we highlight the benefits of addressing them proactively.
Diligent Institute seeks to help corporate leaders be more effective by providing cutting-edge insights on corporate governance, by amplifying the voices of diverse corporate leaders, and by sharing broadly all that we are learning about modern governance practices. Founded in 2018, Diligent Institute serves as the global corporate governance research arm and think tank of Diligent Corporation, the largest SaaS software company in the Governance, Risk and Compliance (GRC) space. We produce original research both on our own and in collaboration with partners, including institutions of higher education and thought leaders in the corporate governance space. We produce over a dozen reports each year, ranging from our monthly Director Confidence Index, which measures how corporate directors are feeling about the economy, to in-depth reviews of issues such as ESG (environment, social, governance) practices, to our AI-powered Corporate Sentiment Tracker that analyzes data from thousands of public sources to discern what’s on the minds of corporate leaders. Diligent Institute is funded solely by Diligent Corporation.
Companies today face more scrutiny than ever before. A growing network of stakeholders is demanding transparency and accountability on issues that go beyond the bottom line.
Increasingly, an organization’s purpose and societal impact will play an important role in driving a company’s valuation, public perception and overall growth and performance.
“The evidence shows an overall increase in opposition to Director elections, with disclosed voting rationales showinga particular focus on Director time commitments, independence, gender diversity and Executive remuneration. Remuneration related resolutions have also seen an increase in opposition which suggests that the context of Covid-19 has provided a catalyst for longstanding concerns around social equity in Executive remuneration.”
Mid-season review of the 2021 U.K. proxy season, Equiniti
The 2022 AGM season is on course to see unprecedented levels of challenge for boards and businesses. As stakeholder capitalism continues to evolve and ESG topics take centre stage, leadership teams and governance professionals need to be primed and ready with the data and insight they need to present and defend key strategic decisions.
The digital transformation landscape is rapidly evolving and impacting organizations and boards on a global level. IDC estimated that global spending on digital transformation increased by 10.4% in 2020 to $1.3 trillion. Organizations and their boards need to adapt, innovate or be left behind. Meanwhile, a transformation is also happening in the boardroom, with board refreshment and diversity concerns fueling the change.
Today, modern governance is required for organizations to thrive and endure in the current fast-paced world. Simply defined, modern governance is the practice of empowering leaders with the technology, insights and processes to fuel good governance. However, finding, nominating and maintaining the right directors brings challenges. How can you overcome old approaches that are not suited for today? What are some best practices for nominating and onboarding new directors? What digital transformation tools can empower you to build the best boardroom for today and tomorrow?
This Diligent report identifies some current challenges to building a better boardroom, evolving trends and priorities, and implementing best practices, and makes the case for adopting modern governance tools.