Board Quality, CEO Pay for Performance, ESG Disclosure Top Global Corporate Governance Trends

Russell Reynolds’ annual outlook of the global corporate governance landscape identifies three global focal areas – increasing scrutiny on board quality, effectiveness, and composition; greater emphasis on CEO performance and succession planning across geographies; and continuous pressures on ESG disclosures from both investors and legislators. 

The survey interviewed experts in the U.S., Mexico and Brazil, United Kingdom, European Union, Germany, France, Nordics, India, Australia and New Zealand, Singapore, and Malaysia. 

EU and UK: The region has seen increasing demand for ESG disclosures and the EU’s Corporate Sustainability Reporting Directive will disrupt the ESG landscape across the European Union and reshape its reporting environment. The region has also seen pushes for a transition to Net Zero, supply chain due diligence, and board diversity requirements.

• In general, government agencies and investors in the EU and UK are asking companies to be more realistic, transparent, and authentic in their disclosures. Therefore, multinational companies should consider embedding a fully integrated business strategy instead of separate ESG initiatives. These moves present challenges to traditional board recruiting and selection processes, as companies need to be capable of understanding reporting frameworks and aligning different disclosure requirements from various regions and countries. 

U.S.: Historically low support for new board members could decline further as investors withhold their support on topics such as disfavored governance practices, board diversity concerns, and attentiveness to shareholder voting. Additionally, greater attention on CEO performance and pay is expected in 2023, and we are likely to see a higher number of CEO transitions. The debate over ESG’s value will continue in the States, putting an even greater emphasis on thoughtful approaches to material ESG issues and oversight. 

• In view of these challenges, on March 21^st HRPA will host a CHRO-only session: CEO Succession and Senior Leader Talent Development to provide a unique opportunity to explore among peers the critical role of the CHRO in supporting the Board through the succession process as well as building a robust pipeline of executive talent.

Asia Pacific: As the countries in the region will have vastly different focus in 2023, we have seen an increasing interest from the public and governments in understanding the board selection process and how it works. The region, recovering from COVID and gradually reopening, is now exercising more caution and restraint over the local impact of realized and perceived global economic headwinds.

Latin America: Attention to ESG standards will continue to grow in the year ahead, but the spotlight will be mostly on the “E.” Additionally, commitment to diversity and gender equity will be emphasized as governance watchdogs look for representation at all levels.