The leading corporate governance trends of 2017

Effective corporate governance is vital to ensuring organisations run efficiently and with the best interests of various stakeholders at heart, including investors, staff and the general public.

In the UK, corporate governance has taken centre stage this year, as prime minister Theresa May unveiled a new green paper designed to optimise the way in which organisations operate.

However, Britain isn’t the only country where corporate governance is becoming more important, and there is a global trend towards nations strengthening their internal systems and mechanisms.

Here are some of the corporate governance trends that are likely to affect organisations in the UK and abroad over the next 12 months.

1. Greater political uncertainty

Both the UK and the US underwent significant political upheavals in 2016. The UK’s decision to leave the EU in June was followed by Donald Trump winning the US presidential election. The UK referendum also resulted in prime minister David Cameron stepping down to make way for Mrs May.

It is unclear what impact these events will have on the economy and the business world, but the news has increased regulatory and legislative uncertainty in the two countries. This confusion was prevalent last year and looks to be a key theme in 2017.

2. Better gender balance on boards

Many European businesses are attempting to improve gender diversity at the boardroom level, and the UK is no exception. The recent Hampton Alexander review recommended that changes should be made to the Corporate Governance Code in order to force FTSE 350 companies to disclose their gender balance on executive committees in annual reports.

FTSE 100 companies are also being encouraged to meet a voluntary target of 33 per cent female representation on their boards within the next three years. Last year, the Women in Finance Charter was also unveiled in the UK, with signatories agreeing to drive diversity within the industry.

3. Increased scrutiny of executive pay

Mrs May’s corporate governance green paper highlighted executive pay as one of the key areas of focus for change in the UK. This year, the government will examine a range of proposed policies, including CEO pay ratio disclosures, binding shareholder votes on executive remuneration and allowing employees a seat at the table when executive pay decisions are being discussed.

The government is also considering performance-related pay to ensure CEO salaries are linked to the value they create within the business in comparison to the rest of the workforce.

4. Optimising risk management effectiveness

Risk management is often at the top of agenda for many businesses, but a recent KPMG report revealed that ensuring the effectiveness of these programs is the biggest challenge for auditors this year.

More than 40 per cent of audit committee members ranked this as a top-three problem to overcome in 2017, while 34 per cent said legal and regulatory compliance. Meanwhile, 42 per cent of businesses said their risk management programs need ‘significant work’ and 15 per cent claimed they are yet to even implement a system.

5. Cyber security preparedness

The KPMG study also noted the importance of managing cyber security threats for internal auditors, with 28 per cent of professionals ranking it among their top three challenges. However, cyber security is far more than just an internal audit issue.

More than 80 per cent of senior executives in a recent RiskIQ study said cyber security is a boardroom concern. Cyber criminals are growing increasingly sophisticated in their attacks, which is creating huge financial and reputational risks for UK businesses. Sadly, a November 2015 E&Y study showed just seven per cent of companies have a robust incidence response program.

6. Tackling company culture

The tone at the top of organisations and the impact this has on overall company culture will become increasingly important in 2017. Huge corporate governance scandals at BHS and Sports Direct in the UK, as well as Wells Fargo in the US, have emphasised how the attitude of senior management can have a significant effect on the wider workforce.

Nearly one-quarter of auditors in the KPMG research said tone and company culture were big challenges in 2017. The IIA also recently released guidance on how organisations can audit culture and tackle these problems.

Preparing for this year’s challenges

Organisations face a number of difficulties over the coming months, and with political, economic and regulatory changes on the horizon, these could be just the tip of the iceberg.

Leaders will need to evaluate whether their corporate governance functions are equipped to handle the challenges they could encounter in 2017. If not, they may need to strengthen their departments and recruit professionals who have the skills and experience to help shore up their defences and foster growth.

Our 2016 Compensation and Market Trends Reports combine our review of the prevailing conditions in the corporate governance recruitment market together with the results of our latest employer survey.

Image: phototechno via iStock