Emerging Trends In Corporate

Governance In 2022
 Reporting on environmental, social and governance factors is gathering momentum, under
pressure from investors who want issuers to promote sustainability.
 In fact, many jurisdictions already require certain issuers to report non-financial performance in
these areas, with the scope widening over time.
 Events of the past two years have fundamentally shifted the business landscape and changed the
way that organisations operate.
 The COVID-19 pandemic has increased our awareness regarding public health challenges.
 The climate crisis has reached a point where it requires immediate action, as illustrated by the
26 conference in Glasgow in the autumn of 2021.
 At the same time, there has been a greater focus on social justice movements, including the rise
of the environmental issues.
 All of these factors have had a bearing on the priorities of shareholders and, therefore, the way
in which boards develop their strategies.
Lynn S. Paine, writing for the Harvard Business Review, said:

“The new environment is characterised by an increasingly complex set of

pressures and demands from various stakeholder groups, heightened
expectations for societal engagement and corporate citizenship and radical
uncertainty about the future.”

Against this backdrop, we explore that there are emerging trends in corporate
governance and we need to prepare for the challenges and opportunities
1. ESG is here to stay

Sustainability and good governance are linked nowadays.

Reporting on environmental, social and governance
factors(ESG) is gathering momentum, under pressure from
investors who want issuers to promote sustainability.
In fact, many jurisdictions already require certain issuers to
report non-financial performance in these ESG areas, with
the scope widening over time. The European Union has a
number of pieces of legislation in place regarding ESG
reporting
2. AnHuman

capital concerns
overwhelming majority of human resources leaders expect at least some employees will work
remotely even after the pandemic is over.
 These 95% believe that the hybrid model of work, where some employees are office-based and
others work from home, is the future and that you must factor this into your strategy development.
 Major corporates such as Google and Apple are already punching back dates by which they expect
employees to return to the office after the COVID pandemic and, although many Wall Street giants
campaigned to get their workers back on site, the majority are still working remotely.
 This is symptomatic of the desire to embrace the ‘new normal’ with many employees demanding
more flexibility.
 Indeed, 85% of millennials want to work remotely full time, with 35% saying they would leave their
current job for a full-time remote role. It seems that the hybrid model is the perfect compromise.
 Other human capital concerns include increasing gender diversity, racial diversity, equity and
inclusion across the company, from the board down.
 Not only is this key for social responsibility, but a corporate culture that embraces people from
different locations, races, genders, backgrounds, experiences and mindsets also allows for more
rounded thinking and decision making. This shows diversity on boards is as essential as anywhere
else in the organisation.
 3. Hybrid and virtual board and shareholder meetings

 The online and hybrid models do not need to be limited to the office. Going virtual or hybrid in the boardroom
allows you to save money on travel and related expenses, increases attendance and allows your board to spread
the net wider to find the best new talent to join your team.
 Board meetings with an online element help you cut the use of fossil fuels and allow for more corporate board
diversity, as there are fewer barriers to attendance.
 Similarly, you can increase shareholder engagement by offering a chance for investors to attend remotely.
AGMs are the perfect opportunity to bond with investors and make them feel truly connected to the company.
But, as the Financial Times reported, before COVID, “critics argued the event was outdated, with many
attended by just a few shareholders.”
 There are numerous reasons why an in-person-only annual shareholder meeting might struggle to attract
investors. Principally, many were held during the workday. This limited the number who were free to attend,
particularly those who lived a long distance from the venue and who would have to book time off from work,
whilst spending money on travel and, potentially, accommodation. For institutional investors and funds with
multiple AGMs to attend during the season, it meant a lot of time on the road and maybe even having to
prioritise which events to attend.
 With the pandemic came the relaxation of rules across many jurisdictions in Europe, allowing virtual AGMs to
take place. Now, shareholders need only clear a window in their schedule for the running time of the meeting,
attending at their desk. As long as you use the right AGM webcasting software, they can feel included as they
interact, engage and vote online.
4. Data privacy regulations

 In addition to the ongoing requirements documented in the General Data

Protection Regulation (GDPR), there are a number of data privacy shifts
expected that EU companies must remain compliant with during 2022.
5. Increased shareholder accountability
 Shareholders scrutinised executive pay closely during the COVID-19 pandemic. The FTSE 100 in
the UK saw the number of companies receiving low votes (under 80% of shareholding) on director
remuneration packages more than double between 2020 and 2021.
 Around the world, investors warned companies who had taken state aid, made redundancies and
took advantage of furlough schemes against making payments to executives that seemed out of
step with the times.
 And this level of accountability for remuneration committees will continue, even as we move
away from the regular lockdowns.
 In the spirit of prizing true sustainability over greenwashing and empty platitudes on inclusion
and diversity, investors will expect their boards to deliver real, tangible results in order to earn
their rewards.
 Indeed, the 2021 Institutional Investor Survey showed an increase in shareholder activism and
that two-thirds of shareholders would support an activist investor if the issuer failed to respond
to an ESG shareholder resolution on executive and CEO pay.
6. “Tone in the middle” culture
 Developing a strong “tone at the top” culture is important because the executives and top management
should be seen as exemplary ambassadors for the company. But it is not enough to spread the word of
compliance throughout the whole organisation.
 If you want to do all you can to avoid compliance risks, you also need to address the “tone in the
middle” culture.
 This is driven by middle management, and the benefit is that regular employees in your business
generally have more contact with this tier of management than they do with board members, for
example.
 If middle management buys into the compliance efforts of the business, they can more easily create an
environment in which employees feel comfortable speaking up when they spot someone acting in an
unethical manner.
 With the EU Whistleblowing Directive now in operation, a good example of this “tone in the middle”
culture is when middle managers show that they welcome and value whistleblowing reports, rather than
treat them as irritation or as a result of troublemaking.
 Implementing a confidential, automated whistleblowing tool like Integrity Log shows that you want to
make it easy and seamless to take a whistleblowing report and assures reporting persons that you will
take their complaints seriously.
2022 Global and Regional Trends in Corporate Governance

 For the seventh consecutive year, Russell Reynolds Associates interviewed global
institutional and activist investors, pension fund managers, proxy advisors, and
other corporate-governance professionals to identify the corporate-governance
trends that will impact boards and directors in 2022 and beyond.
 This year, we spoke to over 50 experts from major investors, regulators, advisors,
and advocates.
 Global Trends Predicted for 2022
 1. Assertive investors willing to vote for change
 2. Higher standards for climate disclosure and action
 3. Enhanced board effectiveness becomes the norm
 4. Further emphasis on equity, diversity, and inclusive culture initiatives at the
board and corporate level
 In the last few years, some governance observers and board members have predicted (or hoped)
that shareholders’ and other stakeholders’ attention to these topics would wane.
 1. investors and others are poised to be more demanding than they have been in recent years.
 2. More assertive, demanding investors who feel empowered to demand action and disclosure on
a growing number of topics, and, with failure to meet those demands, more likely than ever to
vote against companies and individual directors at annual shareholder meetings.
 3. Higher standards for corporate attention to the climate as the materiality of climate change
to individual businesses and society writ large is beyond question. “most stakeholders … now
expect companies to play a role in decarbonizing the global economy.”
 Enhanced board-effectiveness practices become the norm as investors and other stakeholders
realize that good composition, refreshment, and evaluation practices result in improved
corporate performance and decreased risk exposure.
 Urgency regarding equity and diversity initiatives both in the enterprise and the boardroom, as
evidence mounts that diverse organizations outperform others and stakeholders demand
progress without delay.
 We believe that “more” will take two forms in 2022: Not only will there be more activity in each
of these areas (boards taking action, new regulations coming into play, etc.), but there will also
be more attention paid to all of these areas by shareholders and stakeholders alike.
 The level of scrutiny and public oversight of board and directors from 2022 onward will increase
beyond anything directors have experienced before.
 With that in mind, we will now share some of the most pressing trends in each region, and how
we ended up where we are today.