Top Corporate Governance Trends For 2021
The COVID-19 pandemic and social justice movements have had far-reaching impacts on business and society around the world and in many ways, 2020 and 2021 have prompted the world to reach a turning point.
The CEO Today Magazine article, "Top Corporate Governance Trends For 2021," was written by Russell Reynolds Associates Consultant Laura Sanderson, who co-leads the Board & CEO Advisory Practice in Europe. She outlines the UK corporate governance trends that will impact boards and directors in 2021. The article is excerpted below.
The COVID-19 pandemic and social justice movements have had far-reaching impacts on business and society around the world and in many ways, 2020 and 2021 have prompted the world to reach a turning point. This year, as in the previous five years, Russell Reynolds Associates interviewed over 40 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 2021.
The corporate governance trends vary somewhat across regions, but corporations globally are experiencing a reckoning around their role in society and consumers are demanding change. The expectations of the independent directors who oversee corporations have never been higher. In the UK, the environment, diversity, equity and inclusion and social top the trends for 2021.
Climate Change and Other Environmental Priorities
Recognising the current absence of global standards on non-financial reporting, the Financial Reporting Council (FRC) has encouraged UK companies to report against both the TCFD and SASB metrics as an interim step. Companies have until 2022 to comply on a voluntary basis and until 2025 to comply with the TCFD’s climate risk disclosure recommendations on a mandatory basis.
Due to the long-term risk of climate change, we expect to see more companies prioritising this in accounting statements and financial reporting this year. For investors, engagement on climate change is still the preferred approach, but if this does not bear fruit in 2021, then we can expect to see an escalation to voting in 2022. Current campaigns for investors to have a “say on climate” vote may gain traction more quickly. As the UK hosts COP26 in the fall and works to keep pace with the EU’s Green Deal, we anticipate particularly keen political interest in what UK companies do and are already seeing this rising up the agenda for businesses.
Diversity on Boards
In 2017 the Parker Review set a target for each FTSE 100 and FTSE 250 board to have at least one director of colour by 2020 and by 2024, respectively. An update published in February 2021 showed that over the last year, the FTSE100 has recorded its largest annual increase in the representation of women at boardroom level and in senior leadership positions since the Review began. This can be attributed to the increased spotlight on social justice protests in the UK and around the world.
Investors have also set their own voting policies in line with Parker. LGIM wrote to each FTSE 100 company without an ethnically diverse director outlining its intention to vote against the nominating committee chair (usually the board chair in the UK system) in 2022 if the Parker target is not met.
To read more about the trends in the full article, click here.