Harvard Law School Forum on Corporate Governance and Financial Regulation. Trends in 2016
The Harvard Law School Forum featured Russell Reynolds Associates' research, "Global and Regional Trends in Corporate Governance for 2016." The research, co-authored by Anthony Goodman and Jack "Rusty" O'Kelley III, identified the key trends in corporate governance that public companies will face in 2016. The article is excerpted below.
Over the past few years, institutional investors have held boards increasingly accountable for company performance and have demanded greater transparency and engagement with directors. The real question investors are asking is How can we be sure we have a high-performing board in place? Most of the governance reforms currently under discussion globally attempt to address that question.
Around the world, large institutional investors continue to push hard for reforms that will enable them to elect independent non-executive directors who will constructively challenge management on strategy and hold executives accountable for performance (and pay them accordingly). When trust breaks down, activist investors (often hedge funds) move in to drive for change, often with institutional support.
Investors may be increasing their scrutiny of boards, but they are also under pressure. In the United Kingdom, the financial crisis gave rise to an investor stewardship code, and similar codes are being implemented in many other countries, including Japan and Malaysia. These codes attempt to ensure that investors fulfill their responsibilities to manage their investments and vote their shares transparently.
Based on our interviews in five major markets and our collective insights, we believe in 2016 public companies globally will likely face the following trends:
More focus on what makes a highly-effective board, with attention particularly being paid to independence, composition, diversity, and board leaders’ roles—More scrutiny of individual directors by investors, or their advisors, and increasing demand in many markets for internal and/or external board and director assessments to drive board performance
More regulations, more revisions to corporate governance codes, and more rules on disclosure to drive increased transparency
More shareholder engagement, particularly around ESG concerns, and more activist investor interventions when shareholder engagement is absent or trust breaks down
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