Corporate governance trends in Canada


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Cybersecurity and AI in focus

Technology: it’s an integral part of business strategy for nearly all companies and industries, and will continue to dominate board agendas in 2024. The popularization of ChatGPT has brought heightened consciousness and mainstream understanding to the transformative power – and associated risks – of generative AI.

To provide effective oversight of this new technology, boards are enhancing their understanding of AI and generative AI by leveraging both internal and external resources. Boards are also evaluating costs and benefits, while developing robust governance models to allocate and drive accountability. As these tools mature, we expect companies’ understanding and use to follow suit, as will their definition of success. As with other emerging issues, expect growth in investor and other stakeholder interest in these subjects, particularly for implications on the ethical use of AI and its potential impacts on corporate workforces.

Malicious actors leveraging AI are adding a new layer of complexity to concerns about cybersecurity. As cyberattacks intensify in both scale and sophistication, shareholders and regulators are showing greater interest in organizations' cybersecurity measures, prompting boards to prioritize education and management sessions on the topic. Boards are also reviewing their risk management frameworks to assess the effectiveness of their organization’s data privacy in this rapidly evolving space.


Continued maturation of ESG

The pressure on Canadian companies and their boards to strike the optimal balance between sustainability initiatives and long-term corporate viability persists. Institutional investors, proxy advisors, regulators, and society at large are demanding tangible corporate action on climate initiatives and other social causes. However, tensions have emerged between the push for bold corporate action on climate change and concerns over energy security and the financial burden on consumers. This tension is especially pronounced for Canadian companies operating in the US, where skepticism on environmental measures has been more prevalent. Nevertheless, the urgency and reality of climate change persist, compelling organizations to integrate sustainability initiatives seamlessly into their business strategies and operations.

ESG reporting requirements continue to become more onerous for organizations, as new disclosure frameworks are rolled out, augmenting other mandatory and voluntary reporting guidelines. In particular, more stringent reporting about key climate change information, climate risks, and supply chain considerations will require investment and appropriate governance oversight going forward.


Rising domestic and global uncertainty

Ongoing economic and geopolitical uncertainty – and their potential impact on businesses – are expected to be top of minds and agendas for Canadian boards in 2024. Domestically, issues such as persistent high inflation, the looming possibility of a recession, and the impact of a potential change in federal government are of paramount concern. Globally, the risks associated with climate change and rising geopolitical instability loom large, particularly for capital-intensive businesses operating internationally. Such organizations are actively integrating discussions on geopolitical risk and climate change into their regular business deliberations, recognizing the need to navigate these uncertainties alongside the inherent challenges of operating in the market. The evaluation of risks and opportunities through multiple scenario analyses and long-term forward-looking strategies can aid boards in making informed decisions. In response to mounting uncertainty, some organizations are adopting a more conservative outlook, with budgets and balance sheet management taking center stage.


Future-proofing human capital strategy

Talent development, leadership succession, and board composition remain crucial issues for Canadian boards of directors. The uncertain and rapidly changing business environment demands leaders who can navigate through the multitude of challenges and forces at play. Boards remain focused on assessing their current leaders and identifying any gaps in their pipeline. The focus is on cultivating talent and developing the skills necessary for future leaders—not just at the CEO level, but throughout the executive team.

Boards are more thoughtfully assessing their own composition in an effort to find the skills and expertise required in this ever-evolving landscape. The emphasis on “generalists” in board composition remains robust. While specialist expertise can be hired, boards value individuals with good judgment and the ability to advise the CEO based on their broad experience.

Boards will also continue to face pressure to enhance their demographic diversity. Notably, effective February 1, 2024, ISS policy guidelines mandate that all companies in the S&P/TSX Composite Index include at least one racially or ethnically diverse board member. In 2023, one out of every 10 directors on boards governed by the Canada Business Corporations Act (CBCA) was a member of a visible minority. We expect to see this proportion continue to rise in the coming years.


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